Some companies start off with a rich, financially sound backing due to investors. Some founders launch new businesses off of successfully built and sold companies. Others are brand new startups, just being launched from an idea. In all cases, profits should matter. Companies must pay close attention to not just if they are selling product and services, but also if they are turning a profit.
There are several core components that can help a company build healthy profit margins. No matter what stage of the game you are in, it’s important to know about these.
Know the Margin and Work to Increase It
Cutting out low-margin clients, services, or products may seem risky – it’s business, after all. However, if you invest the time you save on those lower-margin opportunities, and put that time and money into higher producing components of your company, you’ll see a bigger return. In other words, sometimes you have to value your time higher.
Look for the Up-Sell and the Cross-Sell Opportunities
Increasing how much you sell with each sale is a good way to get bigger profits coming in. Learn what your current average unit of sale is per customer. Then, consider what the cost per sale is in terms of covering your overhead. An invoice factoring company can help with this. If you can push that average up, you improve margins with lower overhead.
Another important principle is that of velocity. Companies need to move orders or sales through the process faster – from the time they order to the time you deliver. Doing so helps to lower your overhead. The longer you hold onto the order, the more time and money is put into it. Work to increase velocity.
Work to Retain Current Customers
Retention is always a focus of profit margin building. You spend a lot of money to get that new client in the door. You don’t want to have to spend that amount of money for every customer. Instead, you want to do all you can to keep that client buying from you. Give them a reason and reinforce their relationship with you. It’s far less expensive to retain a client than to find a new one.
Working Capital Finance Solutions
When you have a solid business idea, something you are confident it is likely to do well, but need funding, consider working capital finance solutions. These can help those companies that have healthy profit principles in place to grow and expand. Working campaign finances, such as invoice financing, supply chain financing, payroll funding, and others build from those good profit principles, giving you access to the funds you need now to scale.
If you’re not happy with the direction your company is headed, you may need financial support. Borrowing is an option, but establishing good profit principles first allows you to have access to better funding solutions.