At face value, it’s often easier to simply believe that more sales yield more profits. In many business activities, this certainly holds true, but it isn’t the only way. For businesses of all sizes, optimising business activities without boosting sales can yield greater profits. Why would a business want to do this? There are many reasons, such as difficulties in expanding or competing in saturated markets which limit the number of possible sales. Moreover, hiring sales personnel or holding meetings and sales events can be costly, sometimes to the detriment of overall profit margins.
Here are some ways to increase your profitability without boosting sales:
01. Increase Profit Margins
Profits always look good to a business owner, but at what cost? The net profit margin calculation can provide you with a useful means of determining how much of your total sales result in profits. The formula is that the total profits (net income after taxes and interest expenses) divided by net sales. The resulting ratio can be compared to other businesses within your industry to determine how profitable you are. Ask an accountant if you’d like a good benchmark of how your business performs relative to others.
If sales are held constant, businesses need to generate more profits to end up with a higher profit margin. This could happen in two main ways: sell your profits at a higher price or reduce your cost of goods sold. The former option may be difficult but necessary. The latter option means that you’ll need to lower your business expenses, which shouldn’t lead to cutting corners and compromising your quality.
02. Negotiate with Suppliers
If it’s difficult (or impossible) to increase sales any further, or it simply isn’t worth the investment, then look towards shaving off costs by negotiating with suppliers. Discounts on large quantities or reduced order prices for long-term contracts are often neglected. Suppliers want to keep you, their customer, as well, so they’re often willing to negotiate for discounts if it means keeping your business.
Consider the procurement leverage effect, which stipulates that even small, fraction of a percentage point reductions in procurement costs can yield high effective sales increases. Discuss your options with your supplier and try to obtain favourable rates for your raw materials or products.
03. Outsource Your Logistics and Shipping
Delivery times are so important in today’s increasingly digitised world. Reliable and timely deliveries lead to happy customers and can result in fewer returns and lower costs, but running a smooth supply chain can also be a challenge that takes up a lot of time and resources within your business. While large corporations can often afford to have teams of dedicated logistics experts to streamline processes, small and medium-sized enterprises often lack these resources and stand to benefit from outsourcing freight and shipping to qualified experts that have your needs in mind.
Boost Profits by Choosing Freight People
Intermodal logistics is a major and competitive industry. That means freight providers across Australia are competing on cost and quality to provide you with reliable shipments for your goods and products. Choose a freight provider with a proven track record of success and a forward-thinking approach to logistics. Choose Freight People and enquire about your options with us to see how we can keep your profit margins healthy and your customers happy.