How to Run a Business on a Thin Profit Margin
There's really only one way to successfully run a business with a thin profit margin: widen the margin. Even in rough times, a good business manager is constantly working to squeeze more profit out of the company. There are two routes to a wider margin. You can increase revenue or decrease expenses. Most businesses that survive a rough patch do both.
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Instructions
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Reduce Expenses
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Identify the optional costs in your budget: those items that you could run your business successfully without. Cancel unnecessary services and stop placing orders for merchandise you don't immediately need.
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Minimize variable expenses, those services and goods you can't do without but can reduce. Examples include office supplies, cleaning supplies, vehicle fuel and utilities. Identify two things you and your team can do to reduce each budget item. Train your team on the new system and check in for the first few weeks to make sure it's being done.
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Find ways to reduce other expenses. Examples might include reducing your cell phone minutes plan or removing expanded cable from a service you primarily use for internet.
Increase Income
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Raise your prices between 5 and 10 percent. A price hike this small doesn't lose sales or customers, but will immediately boost your profit margin. If you specialize in high-ticket goods or services, consider a price hike of 3 to 5 percent. Three to five percent of a diamond necklace is a big enough increase.
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Identify opportunities for upselling or suggestive selling within the products you already offer. Encourage and and create incentives for your staff to push for these additional sales. Adjunct sales carry a much higher profit margin than the original sale.
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Use guerrilla and community marketing techniques to increase your exposure. This includes social networking websites, free online classified ads, community events, press releases, open houses and anything else that gets your name out for little or no money. Look especially into charitable contributions of time and effort. These cost you little to nothing and can be easily spun into positive press attention for your business.
Leverage the Savings
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Pay down and pay off debt aggressively with at least half of the extra profit from your business. As your debt payments disappear, your margin becomes wider simply by no longer having that line item in your budget.
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Invest a portion of your extra profit into advertising. Though cheap and free advertising exists, professional advertising in high-traffic sources is vital to growing your business.
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Introduce a new product line, one that complements what you have to offer. Don't create a new variation on what you already offer, but add a new service that existing customers will buy as well. A cleaning company could add a recycling service or partner with a vending machine company. A motorcycle helmet manufacturer could introduce branded leathers and gloves.
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