As businessmen, we all know that businesses run for and run on profit. At the end of the day, every businessman thinks about how to increase profit. To do that, we have to consider turnover and margin because every business’s profits depend upon these two factors.

Let me explain the two terms in more simple words. Turnover is referred to the gross revenue or income that is the amount made by sales. On the other hand, the margin is how much of every dollar in sales a company keeps from its income.

Ways To Increase Business Profitability

There are three ways that a business can earn profit through turnover or margin.

Turnover Vs Margin: Taking Suggested Action Into Consideration

Now that we know what can increase your business profitability, it’s time to evaluate these options. For example, a practical businessman would assess the effect these options hold and whether they are applicable and in favour of the business or not.

1.    Can Selling More Increase the Profit?

Sure, it can. However, when it comes to increasing sales volume, the first thing you have to figure out is, can you really increase your sales which largely depend on your business’s nature?

  • You have to look at your plant(s) producing capacity, the number of your employees, and whether you need to hire more employees or the current number can produce the quantity you have in mind.
  • Will you have to expand your business (infrastructure) and need more investment (financing) if the business is already at its full capacity?
  • Is there more demand for your products in the market? What percentage of market share do you and your competitors hold, and is there a gap that you can fill?
  • Would you have to lower your product’s price if you want to sell more?
  • How much more funding (budget) do you have to assign to marketing if you want to increase sales.

If the answer to all of these questions positively aligns with your business, you can pursue this option.

2.  Will Reducing the Business Costs Make You Profit?

Reducing your business costs is also an excellent option to enhance your Gross Profit Margin. For this, you consider fixed and variable costs.

  • For example, in the case of the fixed costs (overheads), you can see whether there is a vendor(s) or other sources who can sell your required raw material at a low price.
  • In case of variable costs, you can check if you can get any discounts or purchasing more raw materials at the same time saves you more.

You also must consider any wastage of materials and how you can reduce them. If you cannot reduce the material waste, what are the best ways to reuse or further sell them?

Reducing costs will allow you to make more profit from the same turnover level but keep in mind and make sure that lowering business costs should not affect the quality of your product.

3.   Does Increasing Product Prices Work?

A darer approach to increasing profit is increasing product prices. For this, you have to look at how this action can affect your sales because this option also has quite a strong tendency to negatively affect your business turnover. Your products’ quality and the marketplace play a huge role here.

So, go through the questions:

  • Is it possible to raise the price of your product without losing too many sales to your competition? You will have to look into competitors’ prices and evaluate if increasing your prices would shift your customers to your competitors.
  • What is the purchasing power of your target market? Is there a unique aspect (USP) to your product that people will be willing to spend on it or can you add one?
  • Does increasing your prices negatively affect the demand for your products?
  • Not to forget, you may have to increase the quality of your products if you want to increase the price and not lose to competitors.

So, now you know how to increase profit margin and the most prominent aspects to look at when you wish to increase your profit. Remember, each option can make or break it for you. So, take these all factors into consideration and take a wise step that favours your business.

If you’re looking for the extra edge for success, Fifo Capital can help.

Give your business options with Fifo Capital.

To speak with our team, call 01 691 7515 (Republic Of Ireland) and 0330 808 8009 (Northern Ireland & Scotland).

P.S. To be eligible for our Invoice Finance service, your business must be a limited company that serves and invoices businesses on credit terms.