By Riddhi Bhatt

Generally, business owners have a common notion that increased sales substantially lead to increased profits. However, that is an uphill task, especially in the short-term. But speaking pragmatically, another way to make more money is by increasing your profit margins while everything else including customers, overhead expenses, premises, sales, staff strength etc. remains the same. Food for thought – isn’t it?

Here are some tips to amp up your profits.

1. Figure Out and Analyze Your Profit Margins

The first step to increasing your profit is understanding it. Make sure you know your overall gross profit margin. It is not sufficient to draw an estimate from your inventory figures or from the last financial annual report. Now, this overall profit figure could be deceiving. So break it down by clients and products or services and analyze your gross margins over various business divisions, clients, products, suppliers as per your business requirements. This way you can identify both loss-making and profitable clients and products.

2. Control Expenses

Renegotiate terms or rates with current vendors and referral partners and find out if they have any special offerings. Cut import costs by negotiating and importing higher volumes. While buying a new equipment take a look at both the purchase price as well as the operating costs for competing models. You could ask for wholesale discounts if your company is product based. The idea is to get more out of what you already have.

You can minimize delivery costs by using courier price comparison tools for each order.

Lower customer acquisition costs by making digital marketing and advertising more efficient.

Do strategic tax planning. When people file their taxes themselves they generally make mistakes and miss out on great money-saving tax strategies and all the deductions that they are allowed. So you can avoid overpaying taxes and thus reduce unnecessary expenses by having a sound tax saving plan in place.

3. Price Analysis

You must make it a practice to analyze your prices from time to time and experiment with them. Check whether you charge all the customers the same for your services/products. There are some customers who are less price sensitive than others as they are not paying the bills themselves, for example, government and larger organizations. In such cases, you can increase your prices to keep up with the supplier price rises and get yourself ahead in the market.

It is a fact that overheads are increasing all the time. There are two ways to tackle this head on. First is to increase your prices and provide some add-on in terms of quality or value. You might lose customers who are bargain-oriented but the majority of your clients are more concerned with the value for money that you provide. The second way is to lower your prices with the sole intention of selling more products or services. However, the quality in no way should be compromised while applying this strategy.

4. Upsell and Cross-Sell Products and Services

Increasing the amount you sell to your customer at one time improves your margins because you increase the purchase velocity while lowering the cost per sale in terms of overheads. So find ways to increase your average unit of sale per customer viz. selling products with accessories (as the accessories are free to deliver because they’re small and added to the same package), upsell to richer offerings by proposing larger units of purchase with some added incentive, cross-sell complementary products or services by clubbing similar products/services and providing them as a package.

All of this will distribute your marketing cost over a larger unit of sale which in turn will water down the marketing cost for each sale and hence lead to an increased profit margin.

5. Eliminate Low Margin Products, Services and Clients

You must maintain an accurate and timely reporting to have a fair idea about which clients, services, and products produce what margins. Then you should engage in a margin analysis to determine the most and the least profitable among your key businesses. The next obvious step is to streamline your offerings to just the most profitable ones and eliminate the low-margin products, clients, and services. Cutting loose these low margin businesses will allow you to spend more time and money and focus solely on the profitable areas of your business. Although this approach might seem a little painful in the beginning, it will be fruitful in the long run.

6. Client Retention

While you search for efficient ways to attract new customers, it is equally important to retain your old customer base. You must focus on increasing average lifetime value for each client and aim for long term relationships. You can achieve this goal by providing outstanding customer service, rewarding your loyal customers by offering them a service or product upgrade, being more customer friendly than your competitors, providing your customers something unique which your competitors don’t offer, improving your turnaround time (from order to delivery), and diluting churn rates (churn refers to when a client terminates his or her association with a business).

7. Embrace Technology

Keep track of your inventory by using inventory systems. This will lead to less working capital being held in the inventory, reduction in theft (if there is any) and stock degeneration. You will also be able to keep a tab on exactly when you are running out of products that are selling well and how much each product costs you.

For service businesses, use technology to automate and eliminate administrative work, which lowers costs.

Take advantage of the cloud-based services that are emerging in most sectors. Many of these services offer automation of tasks that are often redundant. The cost savings and efficiency provided by these services far offset the nominal costs of subscriptions for these sort of services.

Combine your content with technology and use it to your advantage. Use content marketing to turn your website into a content hub of noteworthy information that your customers are looking for.