Unique Opportunities to Increase Margins
Written By Rob Kirkbride, Editor-in-chief, OI Publications • August 28, 2023
Anyone in business is constantly being squeezed from every side. Profit margins — especially for dealers — have been squeezed for years, if not decades. And everyone is looking for opportunities to eke out a bit more margin.
So what can you do to squeeze a little more margin from your business? First, let’s take a look at why margins fall. Profit margins are calculated as a balance between expenses and revenue. If your profits slide, your margins go down. This is often caused by sluggish sales, the economy, shifts in your customer base or a failing business model.
To boost margins, you need to boost sales. Yet there are many things that can erode your margin. Economic shifts, such as high inflation, rising wages and production costs can cut into margin (and business owners have faced ALL of these factors in the last few years). Margin may get dinged by disruptive technology or even careless accounting practices.
How can something so seemingly simple like margin — the total amount of money a company banks after a completed transaction — be so hard to calculate and control and what can be done to remedy it?
A company’s profit margin is a window into how it manages expenses, so it is a good measure of the health of your business. The problem is this: Finding more margin often means investing more money in the business in some areas and cost cutting in others.
Though you need to determine what’s right for your business, here are a few ways to increase margin:
Reduce Labor Costs: This can be a painful choice since people are involved. Still, many companies, when closely examined, either have too many people or don’t have them allocated efficiently. Perhaps you are seeing a lot of overtime costs, which might mean you need to add a person, not subtract. Or maybe the employees you have would be better utilized by being deployed in different ways or tasks added or removed.
Decrease Operating Costs: It is difficult to reduce operating costs as well, but it might be you simply can’t see how to reduce them. Options to reduce operating costs include examining supply costs and working with vendors on discounts — things like discounts for paying bills early. It is also possible to decrease operating costs by investing in software tools to make your team more efficient.
Reduce Utilities: We live in an industry that takes the environment seriously. Yet there are ways to cut costs by going a little greener as a company too. I recently had my home remodeled for energy efficiency and my investment is already paying off through cheaper utility bills. Plus, I’m doing a small part in protecting the environment. Even decreasing the temperature on your thermostat a few degrees (try a smart thermostat that can turn the temperature up or down when no one is in the office) can help reduce heating and cooling costs by 10% a year.
Change Your Pricing (either up or down): Increasing margin means increasing sales (or getting more out of the sales you already have). So if you’d like to improve your margin, you might consider lowering your prices, which should boost sales. Or you can increase your prices. As long as customers are buying the same number of products, but spending more money, margins will increase.
None of this is easy and it takes a lot of work and diligence. But by taking a closer look at your business, you might be able to pump up your flagging profit margin.
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