2015-05-22 00:00:17 Cash Flow English Cash flow isn’t the only metric you have to watch to remain financially fit. Here are four things you can do to increase your profit... https://quickbooks.intuit.com/r/us_qrc/uploads/2015/05/istock_000013575261_small.jpg https://quickbooks.intuit.com/r/cash-flow/4-ways-to-increase-your-profit-margins/ 4 Ways to Increase Your Profit Margins | QuickBooks|4 Ways to Increase Your Profit Margins | QuickBooks

Growing Your Business

4 Ways to Increase Your Profit Margins

Cash flow isn’t the only metric you have to stay on top of to stay financially fit. In fact, even if your business has plenty of cash flow, if profit margins aren’t sufficient, you will still run into problems. Here are four things you can do to increase your profit margins.

1. Reevaluate Your Prices

During the economic downturn, many business owners lowered their prices to compete, but now that consumers are buying again, you may want to think about raising your prices to increase your profit margins. After all, you can sell truckloads of product, but if you don’t have the margins, you’re not going to make any money. First, figure your profit margin for each of the products or services you offer, then consider one of these methods to increase your prices.

  • Add value to your existing offerings. By offering installation, delivery, or customization to go with your current product offerings, you can reasonably raise prices on your products.
  • Offer speedier delivery. When you deliver faster than your competitors, you can ask your customers to pay a higher price, too.
  • Redesign your packaging. When customers perceive that a product is worth more, they don’t mind paying for it. Take a look at your product packaging and determine whether it needs a makeover that could justify higher prices.
  • Bundle products. If most of your customers are buying one product from you but aren’t purchasing a complementary product, try bundling them together in one package for a higher priced sale.

2. Add a New Product Line

Another way to increase your overall profit margin is to add product lines that command higher prices than those you currently offer. For example, if you run a clothing store and sell a midrange clothing line, you might bring in a line of high-end jewelry or other accessories with a higher markup value and pair them with your clothing on displays. Many customers won’t mind paying more for higher-priced accessories if they perfectly complement an affordable outfit.

3. Market to Higher-End Customers

Many small-business owners concentrate on marketing their lower-priced items to get more customers in the door in hopes of upselling them. But that approach can result in lower profit margins. Instead, use your marketing budget to appeal to higher-end customers who buy more expensive products with higher margins. Let the products with lower profit margins be the alternative for customers who can’t afford the higher-priced products.

4. Renegotiate Supplier Contracts

Of course, the less you pay for your goods, the higher the profit margin will be when you sell them. That’s why it’s important to negotiate the best possible price from your suppliers. For instance, if you buy a product for $70 and sell it for $100, your profit margin is 30 percent. But if you renegotiate with your supplier and strike a deal to buy the product for $60, your profit margin goes up by 10 percent. Here are some tips to negotiate with your suppliers.

  • Conduct a spending analysis. Look at your purchases over the past year and come up with a total so you can use hard facts during the negotiation.
  • Look for crossovers. If you buy products from several different suppliers when you could be buying from only one, you have some bargaining room if you agree to consolidate your purchases.
  • Stay on top of current market trends and pricing so you will be ready to renegotiate with facts.
  • Only sign a one-year contract, and renegotiate it annually.
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Information may be abridged and therefore incomplete. This document/information does not constitute, and should not be considered a substitute for, legal or financial advice. Each financial situation is different, the advice provided is intended to be general. Please contact your financial or legal advisors for information specific to your situation.