How to Boost the Margin
There are several different types of margin. The first level of margin on the income statement, called gross margin, is revenues minus the Costs of Goods Sold (COGS). The next level of margin, operating margin, deducts the cost of operations. The third level of margin is net income, which deducts and adds all other expenses or income to operating margin to produce the net income margin. Boosting margin is about increasing sales and decreasing costs.
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Instructions
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Boosting Margin
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Determine the values for your gross profit, operating profit, and net income. These values represent the three levels of opportunites to boost your margin.
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Reduce inventory costs by renegotiating contracts with vendors or finding new vendors.
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Reduce the cost of operations by highlighting budgetary cuts and improving net income by taking advantage of any tax credits your company may be eligible for.
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Tips & Warnings
Gross margin is driven by the cost of inventory. Operating income is driven by the cost of maintaining operations, and net income is driven by the effective tax rate for the company.
Focus on increasing sales. The hope of any business model is that the more you sell, the more you can save on inventory and the higher your margin. This is the benefit of scale and efficiency. Consider additional sales avenues or other ways to market your product. You might also want to consider adding additional product lines to up sell current clients.
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