The way to Increase Your Profit Margins: 7 Ways of Improve Profitability

Illustration of Business Growth Chart

When running your own company, one way to effectively gauge the success of the claims is by measuring the particular company’s profit margins. Your company’s profit margins refer to the percentage of profit left after the cost of goods have been subtracted. Entrepreneurs need to constantly find ways to increase their profit perimeter to ensure that their business cannot only survive in the competitive marketplace, but thrive.

Here we’ve broken down some of the best ways to increase your business’ profit margin:

1 . Know Where You Stand

You’ll have to properly take care of and evaluate your income in order to effectively increase all of them. How do they look at the minute? Have they made any kind of improvements compared to the previous weeks or quarters?

Keeping track of your profit margins will help you determine which areas of your business are not doing well. This could be a failing marketing strategy or badly performing product. Pin pointing these things that are utilizing the particular company’s budget but aren’t generating much profit enables you to eliminate them from the formula. This will create room for products and services that do create an increased profit margin and transform your company’s profitability.

2 . Improve Your Inventory Management

It’s not uncommon for businesses, especially these in the retail industry, in making inventory management mistakes. In case a company has a poorly performing product that isn’t promoting well, it could end up with a surplus of stocks that may be hard to get rid of. This would pressure the company to conduct sales and price markdowns, that could lead to a significant decline in the profit margin.

One way to avoid this is to enhance the company’s inventory administration strategies. Keep close track of your stock so you can make informed estimations as to how much merchandise you’ll be able to sell each month. Efficient inventory forecasting will make sure that you won’t get stuck with extra stocks sitting around within the warehouse. With less stock to hold on to, you’ll also reduce your overhead costs and save more on storage costs.

3. Exercise Upselling and Cross-Selling Products

Upselling and cross-selling are two product sales techniques that aim to add value to a single item or an existing customer. Along with upselling, the goal would be to convince a customer to buy an upgraded or premium version of the product or service they’re purchasing. Cross-selling essentially markets two items together, as going together, so a customer buying one much more likely to also buy the additional. Both of these strategies can effectively increase your profit margins.

If you’re going to utilize these tactics, you’ll need to train your staff to connect the offerings to customers on the sales floor. For example , a customer at a car dealership likes a specific car model. The proprietor will want to make sure his or her sales team knows to promote all the numerous add-ons the customer can purchase to upgrade that model, like leather interiors or satellite television radio. This is upselling. One more example is a customer at a makeup retailer purchasing a blush powder. The store owner would want to ensure that the staff knows to also tell the client about their variety of brushes they can purchase with the blush so that they can apply it properly. This really is cross-selling.

Product placement is also important. It will help to place your best-selling items in strategic locations throughout the store where your customers can easily see and access them.

4. Increase Costs As Necessary

Another way to increase your profit perimeter is to raise your prices. If you see that your income haven’t been improving in the last few quarters, but the item demand remains the same, it might be time to reevaluate your costs.

When considering increasing your prices, you have to consider the prices that your biggest rivals are offering for the same or comparable products. Raising your prices when your customer offers a lower alternative for the same commodity might be dangerous. You could also opt to upgrade your current product by improving it or adding functions to justify the price boost.

5. Discover New Customers

Analysis reveals that finding new customers costs 5 to 25 times more than retaining current customers. This doesn’t imply you shouldn’t do it, though. In fact , a cost-effective way to find new customers is to keep on marketing to your existing ones. Word-of-mouth remains to be an effective advertising strategy that has solid value. Many people trust the word of their friends or family more than advertisements themselves. Discover ways to encourage your existing customers to market your brand to their friends and family, for example , offering them incentives, discounts plus rewards.

six. Be Smart About Offering Discounts

To get better results as you go about giving your current clients discounts and incentives – whether it’s to thank them for being loyal to your brand or referring your organization to others – be smart about the deals you offer. If you blanket consistent discounts to all your customers, it might be harder for you to see an increase within your profit margin. Your customers may have different buying behaviors plus preferences, so study their own purchase history and tailor discounts accordingly. Try informing them about new special discounts through an email for a more personalized approach.

7. Reduce Your Business Costs

It’s more difficult to see an increase in income if your business expenses – both operating and overhead costs – are high to begin with. Investing in automated techniques is a great way to reduce these types of costs, and also improve your company’s efficiency and productivity.

Another great way to reduce expenses is to renegotiate prices with your suppliers or question them for a discount if you’ve already been doing business with them for a significant period of time. You’ll have to offer something in return, like a down payment for a bulk order. This would permit you to cut some of your operating expenses which would, in turn, transform your profitability metrics.


Improving your business’ profit margins is all about applying the right strategies. As with several things in business, finding the strategy that’s right for you and your business may take some trial and error. Be open to trying a few out and seeing how effective both are in increasing your margins. While we believe in the effectiveness of the particular strategies detailed in this article, it is worth noting that there are many more you can employ. As always, it is imperative to do your research.

About The Author

Dane Panes started freelance writing in 2017. Since then, she has written about a lot of topics for different businesses. She started writing for SMB Compass in March 2020 and has been a full-time content writer ever since. Today, she focuses mostly on topics related to entrepreneurship plus business financing.

  • Follow Dane Panes on:

Featured Image: Business growth chart by starline on Freepik. com

Please Note : This post may contain affiliate hyperlinks. By clicking on these links you will not be charged any extra for purchasing goods and services from our favored partners however flippingheck. com may receive financial payment which contributes to the running of the site. For more information please read our Advertising & Affiliate Disclosure Policy

Leave a Reply

Your email address will not be published. Required fields are marked *