For any business owner wanting to make more money, the first place to look for improvement should be Net Profit Margin. The strategies that directly impact net profit margin provide some of the easiest and quickest profit improvement opportunities.
Of the 70-odd primary strategies for improving your Net Profit Margin, these are the five that I’ve seen used most often and for most businesses. They all have the benefit of incurring no significant cost to implement and they work almost immediately:
- Sell higher margin products and services. Do you know the profitability of every product or service that you sell? Are you focussing your marketing and sales on those that make you the most money?
- Optimize your Cash flow. Are you tracking your average days receivable? Days payable? Implement 3 strategies to accelerate how quickly you receive money and 3 strategies to extend how long you can (legitimately…don’t pay late if you want your suppliers to support you!) hold your money.
- Audit your costs. Work through your P & L line-by-line and keep asking, “how will we reduce this cost by 10%”. Then set a budget and do it!
- Increase Gross Margin. There are many ways to do this…negotiate hard with suppliers, stop discounting, raise prices…and remember, once you pass your Breakeven Point, almost all additional Gross Profit drops straight through to Net Profit!
- Sack C’s and D’s. Do you have a list of the clients who cause you most of your headaches? They haggle, complain, buy your cheapest products, request changes, ask for refunds? They’re your C’s and D’s; they generate very little profit but take up a lot of time and cost. Sack them! Use that time and effort to go out and get more A’s and B’s!
Map out a plan and these can all be implemented in a matter of days or weeks….then enjoy the results!