In this series we are answering the question "how can my business be more profitable", last week we shared team care and it's relevance to the bottom line, this week we are talking about margins.
Margins in a business are, in basic terms, the difference between a cost to you as a business, and the cost to the client. Your margins are essential so you know exactly how to price your products, and, if needed, when a product is on sale, knowing how much you can discount without costing you money! In the service industry, you will still need to know your margins, as the cost of running your business is an element within the pricing strategy.
There is a basic structure you can follow to help you figure out your margins in business, and these are developed based upon the cost of running your business, the cost of the product you are delivering, and then the cost to the customer. The percentage or number in between is your margin. You need to know the right amount of profit required to satisfy your needs, which is how you develop how much you need to charge. You can work with your accountant to figure out the costs of running your business, thus how much profit you need to make to be able to keep running.You will also need to know how much time is needed to service each client that uses you. One thing to remember that more clients don't always mean more profits! You only have so many hours in the day, and this theory may mean that your margins are not suited to the number of clients that you can care for in any given month, thus harming your profits.
As a business, no matter whether you are a service or products business, you must ensure your margins cover your costs, as well as create profits for within the company - without the profits and cover for your costs, you will lose money very quickly. If you are selling products, a pricing model often is used to give a markup percentage, to help you quickly price products that you are selling to the client. Selling prices here are determined entirely by the seller's cost and percentage of mark-up, which is where many businesses in this industry can hit problems. Just because you have a mark-up on a product, thus making you profits, you have not considered how much time it takes your staff to pack the product, deliver it, speak with the customer, and make sure everything is in order - thus meaning your are spending money on that time that is not being reimbursed by the client.Always remember time invested, running costs of your business, as well as the cost of the product if you are selling one - with this in mind, you will be able to create a business that continues to be profitable.
