anyspacedirect news

Five ways to improve profit margins in 2011

21th January 2011
With the VAT rise and the Government’s Comprehensive Spending Review likely to make conditions for businesses tough in the first half of 2011, now is the time to consider how your profit margins can be improved. Improving profitability not only helps your company survive the tougher marketplace but also gives it more cash to reinvest in order to grow effectively.

Consider a licensing arrangement

Licensing arrangements allow you to collect increased revenue without any associated costs. Licensing your intellectual property out to other companies can reap many benefits but it’s important to make sure you do so in the most efficient way so you gain maximum royalties from your work. Speak to a professional if unsure – it’s a significant step but one that can really increase your profitability if implemented correctly.

Find out your actual costs

You’d be surprised at how many businesses only have a rough idea of their outgoings and how much they are spending on a daily basis. Spend a week evaluating every single cost in your business and develop an accurate spreadsheet that can be updated now and into the future. Develop awareness of the effect of costs on profit margins and make sure you seek multiple quotes when purchasing services or goods.

Increase your prices

Many businesses are afraid of raising prices, thinking that their customers will run a mile. However most customers expect cost increases at strategic intervals and are very unlikely to switch to a competitor, especially if they are loyal. Many customers don’t even notice the increase at all, and are far more concerned with the quality of the product. Around a 10% increase is a good starting point, but you can increase further if necessary.

Stop cutting prices

Discounts do entice customers but it’s easy to overdo them. Unless you operate in a very particular niche, you don’t want to be known as a discount retailer. Stand by your products and charge a regular price. This not only increases your profit margins but also makes your discounts seem so much more forceful and appropriate during busy periods.

Make your business distinctive

If you don’t have a USP or don’t look particularly different from your competitors, it can be hard for you to operate profitably, particularly as marketplaces get increasingly competitive. Take some time to evaluate your current product ranges and ensure they have competitive advantages so that customers look to you and your products rather than taking another route.

Please also take a look at four ways to improve employee performance.

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