For any organisation, there are different levers that impact profit margins. Some of those are:
- Price. The cost at which you sell your products and services.
- Purchasing. The cost at which you buy the good and services you need.
- Retention. Your ability to retain current customers.
When we look at why margins are eroding, there are many different reasons – absenteeism, theft, rising costs, lower prices, commoditisation of products and services, employee turnover, the number of touch points to get products and services in the hands of your customers.
These are all controllable factors, but many organisations try to control them all at once instead of identifying where the biggest erosion is coming from.
We need to find those opportunities to increase margins without having to make a large investment or utilise a great deal of effort. Think of a car jack, where with minimal effort, you can lift a 2-ton car. That is how we need to think about increasing our margins.
If we want to be even bolder, think about a hydraulic lift where the push of one button can raise many tons and break open our margins.
When I work with organisations to help increase margins, there are five strategies we employ to help break open those margins:
- Identify ways to leverage the goods and services they are buying to increase value.
- Create an emotional connection with customers.
- Reduce the number of touch points in getting the product or service into the hands of the customer.
- Identify new pricing strategies.
- Ensure success metrics are focused on profitability, not just revenue.
Too often we lead with a proposed solution. ‘We need to increase sales.’ ‘We need more training.’ ‘We need to increase our prices.’ Instead, we need to take a step back and identify where the greatest opportunities are for increasing our margins.
Do you know what levers you should be pulling to master your profit margins?