Practical Steps to Increase your Gross Profit Margins.

1. Analyse your profit margins

Your overall gross profit margin could be deceiving. Find out the gross profit margin on each of your products and services, and analyse your gross margins over different business divisions, product categories, suppliers or customer categories according to your business. This way you can identify both low margin or loss-making items and profitable activities or products. Then you can stop selling low margin lines and focus on the ones that work.

2. Increase your prices

It can be difficult to increase your prices, however, often business owners are more worried than their customers about price, and, let’s face it, our overheads are going up all the time.  It’s true that you might lose the odd customer, but if your margin is 50 percent, a 10 percent increase in prices means you can lose 17 percent of your customers yet be no worse off!

3. Review all your prices

Do you charge all customers the same price? If so, why? You’ll invariably find that some are less price sensitive than others, especially if they’re not paying for the bills themselves, e.g. government or larger organisations. Have you increased your prices to match supplier price rises and kept up with the competition?

4. No discounting

Discounting can be the death of many businesses that don’t realise how badly this destroys their margins. Using the same example as above, at the same margin of 50 percent, if you discount your prices by 10 percent, you need a 25 percent increase in sales just to stand still. Say goodbye to your day off!

5. Don’t compete on price

Differentiate yourself in other ways, whether by giving superior value, going the extra mile or reducing all the other (non-monetary) costs of doing business with you—effort, time, anxiety and emotional costs.

6. Take cash discounts from suppliers

It’s normally a much better deal than trying to delay payment, even if you’re borrowing.

7. Prevent theft

Whether stolen by staff or customers, losing cash is very costly. Do you have anti-shoplifting or theft prevention systems in place, even for staff? Do you balance your tills? Who does your banking?  It is important to look at all your systems and identify easy ways for someone to steal form you, then address those gaps and safeguard your business.

8. Watch supplier bills

Check all supplier bills personally. After a while you’ll get a feel for things which aren’t right. Don’t be surprised to find that you’ve been overcharged for goods or services you haven’t received or been billed at the wrong prices.

9. Use inventory systems

Use an inventory system to keep track of your inventory. You’ll find you have less working capital tied in inventory, suffer less theft and stock obsolescence, know when you’re running out of products that are selling well, and know exactly how much each of your products cost you without wading through old purchase invoices. It’s easy, and it works well.

10. Fire Unprofitable Customers.

 Some customers are simply not worth having. These are the customers who demand the lowest price, want extended credit, demand superior service, abuse return policies and delay or simply not pay for products or services. The best thing to do is send them to your competitors. Establish a program to fire unprofitable customers. Review your customer base at least semi-annually!

11 Pay Attention to Small Items

. Small items, such as consumables, accessories and service parts are often less price sensitive as major items. Increase prices here while holding the line on bigger, more noticeable products.

12 Product Returns.

 How often have product returns sat in warehouses for months before someone does the paperwork to get credit from vendors? This is tying up capital and, in the worst cases, losing an opportunity to return a product for credit due to expiration of warranty dates.

13 Starter Kits.

 One way to increase sales and margins on sales is to create “starter kits”. The concept here is that when a product is sold, you include all the parts, accessories and services to install it, plus a supply of consumable items. These kits increase the sales and margin dollars on the initial sale. Typically, these are sold at an attractive price when sold together so as to give the buyer incentive to buy the “kit”!

14 Product Mix.

 Product mix shifts (even subtle ones) can have a major impact on your gross profit margins. Understand the dynamics of your marketplace and what is happening to your business. Understanding your business is critical if you are to focus on those customers, market segments and product lines that give you the highest gross profit margins. You must then develop marketing strategies and implement sales action plans to pursue the more profitable segments of your business.

15 Discipline.

Above all else, the development of pricing strategies, implementation, maintenance and administration is a disciplined process. Obtaining that extra point or two of GPM does not come easy. Dedication and hard work make it happen

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