Increasing Net Profit

December 5, 2016
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Profit Margin Percentage Business Chart Concept

The goal of all small businesses is (or at least, it should be) to have the best possible profits while meeting the needs of its customers.  If one of those components is out of whack, the business cannot succeed in the long term.

Let’s assume that your business doesn’t have deep-pocketed backers who give you years of runway with no expectation of a return on their investment.  Given that, you will need to continually look at your expenses and your income and make adjustments to ensure you are making as much profit as possible.  All while ensuring your customers are satisfied with what they are receiving from your company, whether it’s a product or service.

Simply increasing your sales will increase your revenue, but it will not increase your profit margins.  In order to maximize your profits, it is necessary to whittle down costs while preserving quality.  There are a number of ways to achieve this goal, including overhead cost management, reducing cost of goods sold (COGS), and increasing efficiencies.

Overhead costs can eat up a huge portion of a company’s budget.  There are often opportunities to cut down on some of these expenses without sacrificing on quality of your company’s offerings.  It can be surprising how many areas can be tweaked a little to produce overall savings.  Look into alternatives for insurance, office space, and supplies.  Small changes can add up significantly.

By reducing the cost of your goods, you increase your profit without raising prices, which could result in negative feelings on your customers’ behalf.  Work with your suppliers to see if there is opportunity to take advantage of volume discounts or other cost-saving opportunities.  Don’t forget to look into alternatives for packaging or delivery for other potential areas of savings.

Don’t forget that by increasing efficiency of your physical space, you can also realize substantial savings.  Utility companies typically offer energy audits to see where changes can be made that can result in less energy expended, therefore money saved.  It may also be worth considering going solar.  There can be significant tax benefits for being green.  Not to mention a huge marketing a public relations opportunity for your company to promote being a clean energy using business.

Finding ways to cut the fat can dramatically impact your profit margin and it makes sense to look into a wide variety of options for those potential savings.  Whatever the areas you choose to adjust for savings, keep your customers in mind.  If your cuts impact the quality of your product, you will not keep them for long.  Ultimately, you will find the right balance of profit and happy customers.

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