BY ANDI GRAY
Q: It”™s been a tough two years. We”™ve kept adding new clients, but at lower profit. We now need to figure out how to boost the amount of profit we”™re making on many of our jobs. What are your suggestions?
Thoughts of the day: Boosting margin is all about working smarter, not harder. It starts with understanding how to categorize costs and profits. Use every tool in your arsenal: sales, finance, marketing, operations, human resources.
Here”™s a list of things to try to improve margins:
”¢ Up-sell existing customers ”“ get them to buy something additional that doesn”™t cost much to deliver.
Ӣ Add to the sales force people who can bring in new customers willing to buy existing products at higher prices.
Ӣ Find out what else customers are looking for and figure out if you can make it at a higher than average margin.
”¢ Compare results from one client to another ”“ focus on serving and expanding the most profitable ones.
Ӣ Identify low-margin products or services and vend them out to some other firm to produce for you, or get rid of them altogether and fill the void with something more profitable.
”¢ Make sure that all accounts receivables are collectible ”“ any that are risky, ask for a credit card upfront before taking on the business.
Ӣ Ask for deposits upfront to cover the cost of materials and to lower borrowing costs.
Ӣ Offer financing terms to clients who need more time to pay and be sure to charge interest to any client whose payment is later than 30 days.
Ӣ Look for a leasing firm to work with to increase financing ability.
”¢ Look for competitors ”“ direct or in allied fields ”“ who may want to get out of one or all products or services they deliver. Buy them up, decrease competition.
”¢ Figure out niches ”“ become unique to specific buyers. They can”™t get it anywhere else.
Ӣ Set aside a budget to test out new product and service ideas that can lead to sales in the future.
Ӣ Look for better deals from vendors. Shop around, consolidate volume, negotiate better payment terms, ask for free delivery.
Ӣ Get more products and services out the door faster by increasing productivity
”¢ Look at production labor ”“ how could changing around hours get more productivity? Work four 10-hour days instead of five eight-hour ones, making one less day of stop and start. Put some staff on part time if they”™re not needed full time.
Ӣ Reorganize workflow and get more efficient.
Ӣ Get rid of customers on whom you lose money. Talk to customers about margin and find out whoӪs willing to work with you; sell the losing accounts to a firm that can do the work more profitably.
”¢ Figure out who in your workforce is productive and who”™s not ”“ talk with the unproductive ones and give them 30 days to turn things around or they”™re gone.
Ӣ If a product line is no longer in high demand, send employees who work on that to training on how to sell and produce something more profitable.
Ӣ Ask employees to take vacations in slow times.
Ӣ When overtime starts to build up, cut it back by bringing on part-time workers.
Ӣ Increase productivity by training employees and upgrading equipment.
Ӣ Talk with employees about the importance of increasing margins.
Ӣ Reduce overhead costs. Get rid of excess space, renegotiate bank loans, pay off loans, shop for office-supply discounts, evaluate insurance costs, ask insurance brokers for training classes designed to reduce risk premiums.
The list goes on and on. There are myriad ways to reduce costs and boost gross profit and net profit.
Looking for a good book? Try “How to Sell at Margins Higher Than Your Competitors: Winning Every Sale at Full Price, Rate or Fee” by Lawrence L. Steinmetz and William T. Brooks.
Andi Gray is president of Strategy Leaders Inc., strategyleaders.com, a business consulting firm that specializes in helping entrepreneurial firms grow. She can be reached by phone at 877-238-3535. Do you have a question for Andi? Please send it to her via e-mail at AskAndi@StrategyLeaders.com or by mail to Andi Gray, Strategy Leaders Inc., 5 Crossways, Chappaqua, NY 10514.
