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How to improve your profit margin

Article written by Jannie Rossouw, Head: Sanlam Business Market

It is said that there is nothing new under the sun … and this is also true for business. The reality is that most of us need to be reminded about the options available to us, which may well improve the bottom line of our business.

Have you considered applying any one or more of the following to improve your profit margin?

1. Assess how much overtime is being done

If overtime is continuously needed in a business it poses the question of whether you are (a) under staffed, or (b) inefficient. One way to find out is to ban ALL overtime and then actively monitor the output of your staff. Overtime can become a ‘habit’ where inefficiency is tolerated. We are living in difficult economic times where it might be to the financial benefit of staff to prolong delivery on their outputs. Have you made sure that your business processes are optimal and also that you know what the reasonable output/delivery capability of each staff member should be? Well-documented and efficient business processes and output monitoring measurements will be a good gauge for determining the necessity of overtime, or whether staff expansion might be a more cost-effective solution for meeting output requirements.

2. Know the actual cost of your product or service offering

Do you know the actual cost of each stock item or service offering, or are you working with ballpark figures? On the whole you might be making a profit, but you might be under-pricing your stock or service offering, because you have not run the numbers. Put in the effort to calculate the real cost of each stock item/service offering and benchmark your pricing strategy in the market. You don’t need to be the cheapest product/service provider in the market. This might enable you to increase your prices with the stroke of a pen and still remain competitive.

3. Reduce costs

Put in a concerted effort to reduce cost by a fixed percentage (e.g. 10%) on all cost items in your business. This will force your team to be more diligent in how they spend their budgets.

4. Work with consignment stock

Why do you want to outright purchase stock for your business to sell? Rather rent out retail space on your shelves and fill it with consignment stock. This will have a positive effect on your cash flow and bottom line.

5. Assess which activities can be outsourced

Are there any non-core activities in your business? Think of human resources, information technology services, cleaning and maintenance of premises. When making this decision it is of paramount importance to keep control of activities that improve customer value and drive profits – this is strategic to the business. ‘Non-core’ activities are generally defined as day-to-day routine tasks that add little value and are not adding to the bottom line.

There is an old adage which states:

Turnover is vanity, profit is sanity and cash is reality.

To support business owners with the important task of business planning, Sanlam gives you free access to the book Your Annual Business Game Plan for Success, which provides an easy and straightforward framework needed to draft a well-crafted game plan that will create the positive change and growth necessary for business success.

Go to www.sanlamgameplan.co.za to download your free copy.

Sanlam is a proud Partner of the NSBC.