1. Analyze your gross profit.
Take the difference between your revenues from sales of products and services and your cost of goods sold (the direct expenses associated with the products and services you sell). Then, break it down for each product or service you sell, and consider discontinuing the least profitable among them. You’ll free up capacity and resources to do work that is more profitable. Alternately, you could increase prices on the laggards. Tip: You can apply the same gross margin analysis to different business divisions, product categories, suppliers or customer categories.
2. Add new high margin products and services.
The most profitable sales are generally those made to existing customers. A survey, a set of focus group interviews or even a few simple conversations with clients can help you understand what additional products and services your customers may be interested in purchasing from you. Tip: Given today’s environment and trends, online, self-service versions of what they want (if possible) could boost your gross margin and improve your net margin significantly.
3. Examine your costs.
Rank your operating expenses by dollar amount and try to understand how each one contributes to your overall business. Look for ways to accomplish your goals at lower cost. For example, could you move to a smaller office space and have more employees work from home? Tip: If you can’t clearly articulate what a particular expense does for your business, consider eliminating it or at least cutting it back.
4. Reevaluate suppliers.
Shop around periodically to ensure you’re getting the best value — including pricing, terms and service quality. Tip: Ask suppliers for their best price, especially if your volume has increased. After all, successful companies embrace their suppliers and vendors, viewing them as partners in helping to grow profitability.
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When the economy took a downward turn, you — like many company executives — may have felt compelled to sell as much as possible to as many customers as possible. But if you slashed prices on products and services or sold to less desirable customers to do that, it’s time for a new mindset. Those steps likely narrowed your profit margins, and it’s time to put your focus on finding ways to boost those margins. Try these ideas.