Growing profit proves your business model works and funds more marketing, investment and builds a cash war chest that can help you sustain rough times. Here are nine strategies for growing profit margins as called out in a breakthrough study by McGladrey of National Association of Manufacturer member companies.
You may recall, we wrote an article identifying seven specific strategies to deploy to grow sales now. Pivoting now to profit growth-here are the big nine:
1.Lower Costs Through Operational Efficiencies
Driving down costs improves profits. Carefully figuring out which costs to cut that have no impact on the client should be your daily mission. Lean operations can get leaner. What elements in your business do you spend money on that does not move the needle? What activities are wasteful? Wasted movement? Energy? Paperwork? Scrap? Ask your team how can we make your life easier? They will come up with ideas that bog them down and add no value. Slash it.
2.Investing In Equipment
Give your team the best equipment in the world so they can perform as global leaders. Recently we purchased the best deburring machine in the world to grind sharp spots in our sheet metal. This used to be accomplished in a tedious manner with smart talent performing mind numbing repetitive work. With this investment, now my team makes a better quality sheet metal component faster and less "grinding" on my wonderful people.
3.Focus on More Profitable Existing Clients
Profits pay for Christmas parties and generous benefits to your team. Growing profits by allocating more time on the premier clients-high profit clients-should be your focus. Pair down on low profit and no profit clients. Weed them out. Spend more time embracing the clients that pay the bills and make the company thrive. What are activities that high margin clients enjoy? How can we make the high profit clients enchanted?
4.Change Product Mix
Certain product lines consistently coin money for you. Some products suck you dry. The loser products empty your bank account and pull you down. Drop the loser lines. Focus more time on the juicy margin high profit stars of the show.
5.Upgrade Technology Software
Software is a zone that has outsized productivity leaps. Investing in top-notch software will allow your team to be more nimble and make more astute decision quicker. Poor software makes your team drive with an opaque view.
6.Upgrade Technology infrastructure
Fast servers, fast firewalls and a robust technology infrastructure will allow your team to drill down on important topics-focusing on profitable clients and lucrative niches-not waiting for the server to reboot.
7.Increase prices to clients
In select cases, it makes sense to boost prices to clients. Clients that are low margin should have their prices raised aggressively (so they are high profit margin clients). In some cases, low margin clients will balk about the price increase and surprise-your profits will increase if these clients disappear. Every year your costs go up, you should raise your prices every year to keep up with the inevitable cost increases.
Streamlining the movement of your product so days are not lost or products not damaged pay outsized dividends. Improve your packaging so less products get damaged. Improve the paperwork so more people have clear flags when milestones are happening so steps are not missed. Develop solid freight partners that deliver reliable at a rational price.
9.Work with Suppliers and Clients to Improve Processes
Talk with your vendors and see how contribute they to your process. Maybe they misunderstood your demands and are adding costly senseless activities that add no value to the client. By opening up this dialogue, you will be able to slash wasteful activities of your vendor so your costs will go down and your profits will go up. Talk with your clients. Because like your vendors, they will surprise you and share with you unnecessary elements that can be dismissed reducing your costs. Share with clients some of these savings so that they are incentivized to identify more areas where costs incurred can be eliminated.