By Fiona Barden
A profitable business is generally a successful business and your margin is a measure of that success.
Below are some tips on how to ensure your business is as profitable as possible.
- Prepare financial statements on a regular basis. These will give you the information you need to determine your overall profit margin and where costs can be saved. They can also be used to determine the margin on individual items of stock and to compare how your business is performing against industry averages.
- Focus on boosting profit. Retained profit is an important source of cash to meet your obligations and it can also be used for investment. To maximise profit, you need to focus on sales that give you the highest margin, not just ‘sales’. The only exception to this rule is when you deliberately set out to achieve another aim such as disposing of dead stock to make way for profitable stock.
- If possible, don’t discount prices on lower margin products or services. Use an alternative strategy, such as bundling in support services for a higher price. This is an especially valuable strategy with slow moving lines as it justifies the investment in them.
- Understand the profit contributions of each of your products, and your main customers. This will show you where to best focus your efforts and identify opportunities for improvement.
- Don’t discount unless you can achieve the same or better gross profit margin. It may require large increases in sales to generate the same amount in gross profit. While some price discounting may be required to get shoppers’ attention, a much better approach is to deliver the discount through, for example, an add-on product. This should deliver more dollars of gross profit to the business.
Need help or want more information?
ETC conducts a one page financial plan short course.
The course will focus on balance sheets, income statements and cashflow, as well as tools to assist with monitoring income and expenses.
To book visit www.etcltd.com.au or contact Natasha at ETC on 02 6648 5435.