How to Build a Profit Margin

Your gross profit margin doesn't just depend on how well you manage your money. You must keep track of the sales process. Marketing efforts that lead to few customers are costly and time-consuming. Your profit margin will also suffer if it takes too long to make a sale. Build your gross profit margin by following some practical steps.

Instructions

Difficulty: Moderate

1. Study the gross profit margin. Figure out how much it costs to sell your product or service. Calculate the exact amount, and not just have a vague idea, by taking into consideration operating expenses like rent, utilities, salaries, marketing and how much you're paying yourself.
2. Look at the revenues with a brave heart. Know if you're making 30 percent less than what you're spending or 50 percent less than what you'd like. Be careful about including money you haven't been paid yet. It's legally yours but until it's in the bank, it doesn't do you any good.
3. Budget your business carefully. Set up a bookkeeping and accounting system you feel comfortable with. Make sure you have a record for every expense, including the printer cartridge and legal pads you bought at the store during your lunch hour. Save all your receipts.
4. Examine the number of sales you make monthly. Compare the numbers quarterly. A slow month may be because of the seasonality of your product. It may be due to your marketing strategies. It may be a sign that you're not targeting the right market.
5. Determine the effectiveness of your marketing plan and how long it takes to make a sale. Code your advertisements and coupons alpha-numerically, with expiration dates or unique email addresses. Keep track of how many customers they attract and, when possible, how long it takes the customer to actually buy your product.

Tips & Warnings

• Make sure any money you spend will bring in more business either directly (marketing, advertising and networking) or indirectly (higher product quality, continuing education).
• Examine your gross profit margin quarterly so that problems don't go too long unaddressed.
• Don't forget expenses can be fixed (don't change throughout the year) or variable (depend on the number of products you buy and/or sell).