Whether you’re a lawyer, an accountant, the owner of a manufacturing company, or another type of professional, you have to pay office costs. That overhead can get expensive and cut into your profit margins. There are key things you can do in the office to boost and protect these margins.
To improve profit margins, you need to know what they are. Use accounting software or another type of system to track profit margins. Ideally, you should create reports on a regular basis that show your profit margin in various aspects of your business, so you can tell when there’s been growth. This metric is slightly different than profit on its own. It measures the percentage of profit you earn for each dollar of revenue you collect. For example, if your profit margin is 15%, you have 15 cents of profit for every dollar that comes in the door.
Eliminate the Office
The most effective way to boost profit margin in the office is to simply get rid of the office. A huge group of mobile apps make it possible to set up remote offices relatively easily. There are apps that can track hours, facilitate meetings, generate financial records, organize group projects, and keep everyone connected. If you need a space to meet clients, consider revamping a room in your home; in many cases, that also makes you eligible for the home office deduction. There are also alternatives such as a coworking space. For example, in some arrangements, you pay a monthly fee in exchange for use of a conference space, mailboxes, and other office amenities. That gives you the benefits of having an office at a much lower rate.
If you can’t reasonably get rid of your office, you may want to consider using the space to generate extra cash. Do you have a cubicle that a telecommuter or independent contractor could rent? Do you want to rent your conference room to a startup on the weekends? If you have a kitchen on-site, a small catering company may even want to rent it in the evenings or weekends. Explore ideas to share your office space in ways that generate a bit of extra cash for your business.
Is your office still reliant on a lot of paper? If so, that’s another area where you may be able to lower costs. Although it only costs a few cents to print most office documents, that adds up over time, especially when you take into account the cost of printer cartridges and managing the machinery. Consider getting rid of that aspect of your office and going paperless. It’s likely your team already has laptops, tablets, or smartphones, and you can use those electronics for most-paper based tasks. With the right programs, you can share and modify documents, send invoices to clients, and capture legally binding signatures.
Upsell and Cross Sell
When you’re trying to improve profit margins, cutting costs is only half the battle. You also have to increase the amount of money coming through the door. Start with your existing clients. They already patronize your business, and in most cases, it’s easier to convince them to buy more than it is to find new clients. Identify ways that you are your team can upsell and cross sell your products and services.
Cut Low-Margin Clients
Upselling and cross selling helps to improve the overall value of your clients, but you may still have clients who simply aren’t pulling their weight. Look through your list of clients and identify the ones with the lowest profit margins. In some cases, you may find that you have increased the services to low-paying clients over the years without raising prices. When that happens, you often end up with clients with negative margins. It can be hard to cut ties, but you may want to drop these clients.
If you typically pop expenses on a company credit card or use a line of credit to write payroll cheques, you are spending money unnecessarily on interest payments. In this case, you may want to dive into some cash flow anaylsis to determine how much cash you’re likely to have on hand at any time, so you can structure your bills and pay them in cash rather than with credit. You may also want to look at ways to speed up your accounts receivable turnaround to boost your cash on hand. If you can eliminate or reduce interest payments, your money becomes cheaper to use, which ultimately boosts your profit margin. Healthy profit margins can vary from industry to industry. However, if you feel like your margin is too low, you should explore ways to increase it. Once you finish analyzing and improving the profit margin in your office, you may want to start looking at other sectors of your business and improving the margins there.