The third way to increase profits is to reduce what you pay for each unit. This is where your profit margin calculations will be useful, since you’ve already analyzed and understood all of your costs.
Can You Reduce the Cost of Materials or Manufacturing?
Look at how much you’re paying suppliers for materials or to make the products in the first place. Explore whether you can buy in larger amounts to reduce the cost per item. This can also help reduce your distribution costs. If you’re paying someone to provide services, look at ways to make that more efficient through automation or software.
Can You Reduce Operational Costs?
Operational costs are one of the main places you can make savings. Analyze your marketing and sales efforts to maximize your return on these investments. Use software to automate parts of your business. Think about charging slightly more to cover distribution costs. Go through your operational costs line by line and ask how you can reduce them, even by a small amount. It all adds up.
Can You Reduce Hidden Costs?
Hidden costs are another treasure trove of cost reduction opportunities. Talk to your accountant about reducing your tax burden. Create self-service facilities for your customers to reduce customer service costs. Try to reduce payment processing or exchange rate fees. Again, look at all your hidden costs and find money-saving options if you can.
That’s it — once you understand your profit margins, you can tweak your pricing and see how that impacts on sales. At the same time, work on reducing costs. When you can balance the cost per item with a good price point, you will create healthy profit margins, enhance profitability and grow revenue.
And that’s good for everyone.