Once your business earns consistent revenue, the next goal should be to increase margins, which can be done by cutting costs, expanding sales and marketing and raising prices. Cutting costs is the easiest route since it does not involve the resistance that comes with sales or markups. The main challenge in cutting costs is overcoming the reductions it may create in productivity. Improving sales, on the other hand, may mean hiring new employees, which in the short term can lead to lower margins. The following examples of how to increase margins consider these factors with an emphasis on both short- term and long-term profits. You may find useful erp system development company.
1. Cut Costs
One of the biggest expenses in a business revolves around inventory, since it takes up storage space, which includes energy costs. It also represents goods that have been purchased from suppliers but haven’t been resold to customers for a profit. While you may consider negotiating with suppliers on costs, it may be even more advantageous to devise a system that reduces inventory or eliminates it and buying from suppliers as orders come in. You should at least stay on top of reviewing supplier bills to make sure you are not being overcharged.
Another way to cut costs is to move your business to the cloud as much as possible. While not all businesses are suited to be completely cloud-based, it is a way to cut down on many traditional expenses, such as office space, computer hardware and software, IT services, telephones and fax machines. Storing all your files digitally and communicating through VoIP and email services can save hundreds of dollars per month. It's possible for some businesses to operate completely from the cloud, using outsourced virtual assistants and automated self-booking software.
2. Expand Sales and Marketing
If your business model is fine-tuned and is working on a small scale, then it's possible to increase margins by operating on a larger scale. You simply hire new sales help and increase your marketing channels so that your message reaches a wider market and you have the people in place to handle the heavier sales volume. This strategy should only be done, however, when your market research tells you that you are capable of increasing your market share. Blindly taking a stab in the dark at expansion can backfire and lead to rapid debt, so make sure that your research points to an underserved market that you know you can reach. Increasing your marketing channels can be done in several ways through both outbound and inbound marketing.
3. Raise Prices
Instead of competing on price, promote the value of your product or service and how competitors cannot provide the same quality solutions. Figure out how to become the "Apple" of your industry by being the most innovative. Your most loyal customers will keep coming back and recommending your brand to others if you super-serve their needs better than competitors can. Many consumers are more concerned about product quality than price. If your target market comprises such quality-conscious customers, then raising your price will not upset them the way raising prices will at a discount store.
The key to raising prices is to add value at the same time. Ask yourself where the product or service currently is positioned in terms of value proposition. If it's already a low or high value at a high price, you may not be able to increase the price much and hold the same loyal market. But if you happen to offer a high value item at a low price, it's possible to raise the price and maintain the same clientele while increasing your profit margin. The factors of value that are non-monetary include how the item benefits the customer as far as saving time, reducing anxiety, the amount of effort required and the satisfaction it produces. Ultimately, you can increase margins by improving quality.