Normally the first thing most businesses think about when it comes to maximising profitability is getting new customers and controlling costs.
While both of those things are essential, the amazing power of your Gross Profit margin to boost profitability is so often overlooked. Let’s not overlook it for a second longer! Because a seemingly small increase in your Gross Profit margin can result in a huge increase in your net profit.
In some situations, a 5% increase in Gross Profit margin can result in a 50% increase in net profit!
| Sales | £2,000,000 | £2,000,000 | ||
| GROSS PROFIT | £600,000 | 30% | £700,000 | 35% |
| Overheads | £400,000 | £400,000 | ||
| NET PROFIT | £200,000 | £300,000 |
That's a 50% increase in net profit!
Given the importance of Gross Profit margin, here are 4 ways to increase it:
DifferentiateDifferentiate your business from your competitors, so you stop competing on price. You need to give your customers other reasons to buy from you other than price. Focus on what makes your products and solutions different, desirable, and better than your competitors, so price isn’t the only consideration.
Pricing, pricing, pricingNever underestimate the power of pricing. Pricing is so important when it comes to increasing your Gross Profit margin - to really maximise your margins, you need to price based on the value of your product. This means you need to focus on how much your product and solution is worth for your customer, rather than how much it cost from your supplier.
Focus on a profitable product mixEvery business has its more profitable products, and less profitable products, so simply focusing on selling more of the higher-margin products will lift your overall margin. To do this, it’s essential that you know how profitable your product lines or groups are, so you know exactly where to focus your efforts.
Increase your average order valueProcessing lots and lots of tiny orders can sap profitability and cause delivery costs to rocket as a % of sales. Focusing on increasing your average order value through upselling or minimum order values can help you dilute your delivery costs, and increase your Gross Profit margin.
In summary, Gross Profit margin is very important, and focussing on it in your business will have a profound impact on your bottom line. Focussing on differentiating, effective pricing, and pushing the higher margin product lines, will help you do just that.
Get in touch via the form or call 02476673160 for support and advice. Let’s work together to grow and strengthen your business.
Please note: This article is provided for information only and was correct as at time of writing (09/06/23). Any lists and details provided above are not exhaustive and are not intended to be full and complete guidance. No action should be taken without consulting detailed legislation or seeking independent professional advice. Therefore no responsibility for loss occasioned by any person acting or refraining from action as a result of the material contained in this article can be accepted.
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