We’re going to identify the silent killer in your business and show you some easy tricks to help make it work for you!
What is it?
It’s your Gross Profit Margin!
We reckon 90% of Businesses we assess are trading poorly or drowning against their Competitors when comparing Gross Profit Margins; and the Owners are shocked to hear when we tell them there is a 5% to 10% further profit available when we crunch the numbers with them. On a $1million Sales Income you could be throwing away $100,000 of free money which could go straight to your Net Profit! This could also mean the difference between trading with profit and trading without!
If you’re struggling to find extra money in your business then this is the first place you should look. Let’s crunch some numbers and show you!
Image A shows you the effects of working with what you’ve already got and simply reducing your Cost of Goods. For a business such as a Café, any savings in Cost of Goods should instantly go straight to your Net Profit as all your other major operating expenses, such as wages and rent, should stay relatively the same! Depending on what industry you’re in and how you scale your business, this should also apply to other Businesses.
When there’s a downturn in Sales, your willingness and diligence to monitor and control your Cost of Goods should give you some breathing room when times are tough (refer to Image B).
So here’s four easy tricks to help increase your Gross Profit Margin and make the silent killer work for your Business:
1. Stop selling your low profit margin lines and focus on the ones that make you more (this includes focusing on the customers that bring you more money).
2. Make sure you are paying the best prices for your goods. Staying with one Supplier for too long can make you complacent. If you are on the best payment terms with your Supplier, then why not pay your Suppliers early or “on-time” to receive their “Early Payment Discount”; or pay with Cash if a discount is offered.
3. Increase your prices. You may lose some customers but they were probably the customers who always had something to complain about and were worth little to your Income. If you’re too scared to increase your prices across the board, try doing it to just 80% of your product range (e.g. your least popular lines). See what happens when you increase your prices – refer to Image C and D.
4. Stop discounting! Refer to Image C and E and see what happens when you discount – you might think twice next time!
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The information contained in this post is an opinion based on past experience. Do not take this as financial advice.