Does your business have gross profit woes? If so, it might comfort you to know you’re not alone.
Most businesses struggle to achieve a healthy gross profit margin. This is why 20% of small businesses go under before celebrating their second birthday.
Fortunately, there are several strategies you can use to boost your gross profit. Different sources will recommend different ways, stressing their effectiveness in increasing business profit. The variety may make it all too confusing for you to determine what to focus on to achieve profit growth.
So, here are eight surefire ways to give your gross profit a boost.
1. Increase Your Prices
Increasing your prices will help you make more money with every sale, widening your profit margins. You need to consider several factors when setting prices.
Examples include what the competition charges and what customers are willing to pay. When increasing your prices, you should consider the type of buyers you intend to attract.
Your strategy to increase prices will most likely work if you’re selling to customers who don’t base their buying decisions solely on price. These customers would gladly pay a higher price for your products if they received the best customer service.
2. Increase Your Sales
Selling more products and services will directly lead to an increase in your gross profit options. One of the best strategies to increase sales is to use appropriate marketing strategies to reach existing customers and attract new ones. Marketing will allow you to exploit new markets and customer segments, which can significantly increase business profit.
If you have enough capital, you can open more stores or branches to reach a wider audience. You can also introduce new products or services to your line-up. However, you should offer products or services that complement your existing offerings and appeal to your target market.
3. Reduce Operating Expenses
Operating expenses are the costs associated with running your business. These include rent, utilities, payroll, and marketing. Reducing these expenses will free up more money to contribute to gross profit.
You can reduce operating expenses by renegotiating your current contracts, such as your lease agreement or insurance policy. You should also take a close look at your marketing budget.
There may be opportunities to trim costs without sacrificing results. For instance, you might be able to reduce your spending on paid advertising by increasing your organic search visibility.
4. Manage Your Business Finances Better
Managing your finances means understanding where your money is coming from and where it’s going. You can do this by creating a budget for your business. This will help you track your income and expenses to understand where your money is going.
Ensure your bookkeeping is up-to-date and accurate. This will help you avoid mistakes that could cost you money. Pay more attention to tax planning to minimize your tax liability and maximize your profits.
5. Lower Your Cost of Goods Sold
The cost of goods sold (COGS) is the direct cost of producing your products or services. To increase gross profit, you need to find ways to lower your COGS. One way to do this is to negotiate better deals with your suppliers.
You should also look for ways to streamline your production process. This could involve investing in new technology or redesigning your manufacturing process. By doing this, you can reduce labor costs and increase efficiency.
You can also lower the COGS by decreasing the packaging cost and using cheaper materials. For example, if you’re selling food products, you could switch to using recycled packaging materials.
6. Improve Your Inventory Management
Poor inventory management is one of the common financial pitfalls for small businesses. If you sell physical products, your inventory management will directly affect your gross profit.
One way to improve your inventory management is to take advantage of economies of scale. This means buying inventory in bulk so you can get a lower price per unit.
You should also consider just-in-time inventory management. This strategy involves only buying the inventory you need to meet current demand. It can help you avoid tying up too much capital in inventory that might not sell for months or even years.
7. Increase Your Brand’s Perceived Value
Your brand’s perceived value is how consumers see and feel about your products or services. If you can increase the perceived value of your brand, you’ll be able to charge more for your products or services. In turn, you’ll increase your business profit.
One way to increase value is to focus on quality. This means using high-quality materials and manufacturing products that meet or exceed customer expectations.
You can also improve the perceived value of your brand by offering superior customer service. The services might involve providing more support, faster shipping times, or better warranties.
8. Increase the Average Order Value
The average order value (AOV) is the amount of money customers spend per transaction. If you can increase the AOV, you’ll be able to increase gross profit.
You can increase the AOV by offering discounts or free shipping for orders over a certain amount. This strategy will encourage customers to spend more per transaction.
You should also focus on upselling and cross-selling to existing customers. This involves selling complementary products or services that customers might be interested in. For example, if you sell laptops, you could upsell a customer by selling them a laptop case.
You can also increase the AOV by offering bundle deals. This is where you offer a discount if customers buy multiple products at once. For example, you could offer a 10% discount if someone buys two or more items from your store.
Start Increasing Your Business’s Gross Profit Today
Increasing your gross profits should be at the top of your list of priorities. Your company will eventually fail if you don’t take measures to boost your profit growth. Use the tips in this article to start increasing gross profit today.
While focusing on boosting your business profits, you’ll benefit from working with a virtual CFO who can help you make profitable financial decisions. That’s why you should work with our team at Bennett Financials. We will provide tax planning, bookkeeping, and CFO services to help you grow your business.
Contact us today to learn how we can help you streamline your business finances.