The Kickass Entrepreneur
  • About
  • Blog
    • All Blogs
    • Create Wealth (Investing)
    • Entrepreneur Interviews
    • Featured Top Posts
    • Growing Profits
    • Growing Revenues
    • Marketing
    • Positive State of Mind
    • Real Estate Investing
    • Retirement
    • Sales
    • Selling your Business
  • Book
  • Courses
  • Podcast
  • Resources
  • Contact
The Kickass Entrepreneur
Subscribe
The Kickass Entrepreneur
  • About
  • Blog
    • All Blogs
    • Create Wealth (Investing)
    • Entrepreneur Interviews
    • Featured Top Posts
    • Growing Profits
    • Growing Revenues
    • Marketing
    • Positive State of Mind
    • Real Estate Investing
    • Retirement
    • Sales
    • Selling your Business
  • Book
  • Courses
  • Podcast
  • Resources
  • Contact
  • All Blogs
  • Growing Profits

19 Easy Ways to Increase Profit Margins for Your Small Business

  • December 7, 2021
  • 25.1K views
  • 7 minute read
  • Jeff Wiener
Increase Profit Margins
Increase Profit Margins
Share
Tweet
Share

Most small businesses make a surprisingly small amount of profit and have lower profit margins then you would expect.

I covered this in a previous post titled: How Much Profit Does the Average Small Business Owner Make a Year?

In the post, I concluded that the average profit margin of a typical small business in North America is approximately 7%.

Surprisingly, the average public believes that the typical small business owners make a 36% profit margin a year.  

The 7% number means that, at the end of the month, and year, the average business puts 7% of revenues into their pocket as profit.

There are very few businesses in North America that make anywhere near a 15% profit margin. In fact, anything about a 13% profit margin will propel your business into the top 10% of businesses in the market.

Of course, profit margins vary from industry to industry, and between economic cycles, so it’s hard to generalize on all industries in aggregate, but, if you can improve your margins, then you will increase the total profits.

Profit Margins Explained:

As an example, if you can increase your profit margin from 7%, to a more reasonable number like 15%, then you’ve added an 8% additional margin as profit.

A quick calculation:  if your business’s revenue is $2 million a year, and your profit margin is 7%, then you will earn a total of $140,000 as profit in the year ($2,000,000 X 7% = $140,000).

If you can increase your profit margin from 7% to 15%, for example, then in the above example, the profit will increase from $140,000 a year, to $300,000 per year, or an additional $160,000 into the small business owner’s hands.

It, therefore, goes without saying that every small business owner should be looking for ways to increase profit margins in the business.

Profit MarginGiven the importance of profit margin to a small business, i.e. the higher the profit margin, the higher the profit that goes into your pocket, I will review a few ways that you can increase the profit margin for your business:

19 Easy Ways to Increase Profit Margins for Your Small Business

  1. Increase Your Prices:  This is a fairly obvious one, but, of course, you need to review your pricing strategies, and then, be careful that you understand the price elasticity of demand for your product.  If you increase product prices too much, and sales decline at too high a percentage, then you might increase profit margin, but, in the end, lower overall profits.
  2. Stop Product Discounts:  If your company is discounting products too frequently, lowering the discount level, or stopping discounts all together, will help to improve the profit margin.
  3. Look for Product Seepage or Product Theft: this one is fairly obvious.  It’s possible you have product going in through the front door and out the back door (in an employee’s pocket) without being accounted for.  Watch for employee theft, and you will, of course, increase profit margin.
  4. Negotiate Vendor Discounts:  the better the discounts, the more dollars into your pocket, the more you improve the profit margin for your business.
  5. Negotiate Payment Terms with Your Vendors: ask your vendors if they will provide payment terms, for example, 2 10 net 30.  This means that if you pay your invoice within 10 days, you will receive a 2% discount. The 2% goes to the bottom line, and also helps to increase profit margin.
  6. Negotiate Better Freight Agreements with Your Suppliers:  If you can reduce your freight charges, you will reduce the overall cost to have the goods delivered to your door, and in turn, improve profit margin.
  7. Combine Orders with Your Suppliers:  Rather than order multiple products on separate orders, if you can consolidate more products per shipment, then you will reduce shipping fees, and in turn, improve profit margin.
  8. Fire Some Customers:  Not all customers are great for business.  If you have a customer who is hurting your business, or, requesting product prices that you believe to be unreasonable, then maybe it’s time you fire the customer.
  9. Avoid Paying Your Employees Overtime:  if and where possible, if you can avoid the larger expense of overtime fees, then you will help to improve your bottom line.
  10. Cut Down on Contract Workers:  Similar to point 9 above, if you can cut back on contract workers, who typically make more than an employee on an hourly basis, then these cost savings will go directly to your bottom line as well.
  11. Elevate Your Brand and Position in the Market – a Gucci purse sells for way more than a no-name brand.  A Pal Zileri suit sells for way more than a no-name suit. Building your small business’s brand, especially vis-a-vis your competitors, will help with the sale price, and in turn, increase profit margin.
  12. Reduce Waste – reducing waste includes things like paper, and ancillary products that your small business consumes, and maybe even uses in packaging, which will help reduce overall shipping costs and profit margin.
  13. Reduce Product Wastage and Breakage:  I can’t even begin to imagine how many dollars we saw slip out the door in breakage. These are products that fall and break, snap, or get damaged somehow, and you can’t go back to your supplier for a return because the damage is your company’s fault.
  14. Add New Products to Your Product Mix – perhaps the products you have in your product portfolio could be complemented by adding some additional products, and hopefully with even better margins.  For example, if your company sells couches, you could add coffee tables to your product portfolio, and increase the revenue per total sale.
  15. Alter Your Company’s Focus:  this is in line with number 14 above.  If you can add additional products to your portfolio, or, for that matter, maybe even change your business’s focus slightly, then you can broaden your business’s appeal, and in turn, potentially increase your customer base and average revenue per order.
  16. Increase Your Company Size:  With company size and scale, come economies of scale. In other words, if you increased sales or revenue from $2 million to $3 million, you likely won’t need an additional photocopier, phone system, website, and so on, for your business.  All of these saved expenses go directly toward the bottom line.
  17. Add Recurring Revenues to Your Business:  If you can add additional products and services, as per point 14 above, especially recurring revenues, to each order, then your revenues will increase, and with that, additional profits.
  18. Find a Business Grant – there are many resources, and govt facilities, that will provide a business grant, often for free, to help build businesses in a specific sector.  You can see if your business qualifies.
  19. Improve Management Efficiency – I’ve seen many businesses that operate too management top-heavy, i.e. too many managers and too few staff.  If you can cut back on managers, then that will contribute directly toward your bottom line.

To speak to some of the above points, here’s a blog post I wrote recently that discusses small business profitability:  Profit Isn’t a Disease. It’s the By-Product of a Well-Run Company. If You’re Not Yet Profitable, Fix It or Get a Job.

How Does Increasing Profit Margin Help Profitability

With the 17 examples, I provided above, if you can find a few ways to improve your small business’s revenues, with ideally long-term strategies, and ultimately, margins, then that will help improve profitability.

Let me provide a brief example:

Let’s look at business scenario number 1 with a simplified income statement:

Income Statement Example 1, Business ABC

  • Revenues = $1,000,000
  • Cost of Goods Sold (COGS) = $400,000
  • Gross Profit = $600,000
  • Operating Expenses (rent, salaries and so on) = $500,000 
  • Net Profit = $100,000

EBITDA operating profit margin to revenues = 10% ($100,000 / $1,000,000)

Now let’s review Business XYZ with profit margins of 15%

Income Statement Example 2, Business XYZ

  • Revenues = $1,000,000
  • Cost of Goods Sold (COGS) = $350,000
  • Gross Profit = $650,000 (Gross Profit Margin = GP / Revenues)
  • Operating Expenses (rent, salaries and so on) = $500,000 
  • Net Profit = $150,000
  • EBITDA operating profit margin to revenues = 15% ($150,000 / $1,000,000)

Notice that, in the above example, the business improved its Gross Profit by $50,000.  This improved gross profit improvement directly impacts the bottom line, or net profit, of the small business.

Here’s an excellent video that explains profit:

What is the Difference Between Margin Versus Markup

There’s one more area of confusion that I wanted to clarify.  I speak with small business owners all the time, and they seem to be confused by the terminology of margin versus markup:

What is Margin? Margin is the amount of profit divided by the amount of revenue (for a company) noted as profit margin, or, the cost of a good, as a percentage, divided by the sale price of that good.

What is Markup? Markup is the total added to the price of a good. Let’s say the good costs  $1,000, and the final sale price is $1,600, then the markup is $600, and as a percentage, 60%.

Conclusion:

Although its importance is often neglected, the profit margin, and as a result, the amount of profit that the small business owner earns can vary with some slight product, supplier, pricing, or strategy business tweaks.  Make some of those changes, and watch your profitability soar.

Good luck with your business and wealth-creating journey.

Related Posts:

  • 5 Steps For Your Small Business Profit Improvement Program and a New Profit…
  • How to Create Profit as a Small Business
  • Turn Your Small Business Into a Profit Machine in 60 Days
  • What Is The Average Profit Margin for a Small Business in North America?
  • 15 Easy Ways to Save Time and Money When Running a Business

If you enjoyed this post, you might also enjoy this one:  Profit Isn’t a Disease. It’s the By-Product of a Well-Run Company. If You’re Not Yet Profitable, Fix It or Get a Job.

And this one: How Do You Know When It’s Time to Sell Your Business? It’s Not All About the Money.

You should also consider subscribing to my blog. I publish one article a week on small business and wealth creation.  You can subscribe here.

Also, I published a book during the summer of 2018, “The Kickass Entrepreneur’s Guide to Investing, Three Simple Steps to Create Massive Wealth with Your Business’s Profits.” It was number 1 on Amazon in both the business and non-fiction sections. You can get a free copy here.

Thank you for your interest in THE KICKASS ENTREPRENEUR'S GUIDE TO INVESTING. Three Simple Steps to Build Massive Wealth with your Business's Profits. Please check your email to confirm the book download. Form: 400529

There was an error submitting your subscription. Please try again.

Related Posts:

  • 5 Steps For Your Small Business Profit Improvement Program and a New Profit…
  • How to Create Profit as a Small Business
  • Turn Your Small Business Into a Profit Machine in 60 Days
  • What Is The Average Profit Margin for a Small Business in North America?
  • 15 Easy Ways to Save Time and Money When Running a Business
  • How Much Profit Does the Average Small Business Owner Make a Year in 2022?
Share
Tweet
Share
Jeff Wiener

Jeff sold his company to private equity in 2017 and is now semi-retired. Jeff spends time traveling and with his family, writing this blog, managing his real estate portfolio of apartment buildings,  overseeing his investment portfolio, investigating angel investments, coaching other entrepreneurs, and managing his private equity holdings. Jeff is currently on a couple of boards, one for profit, the other not for profit, and now helps entrepreneurs grow their business, profits, and ultimately, create wealth.

Previous Article
marketing materials
  • All Blogs

How to Make Your Online Business Secure

  • December 7, 2021
  • Rene
View Post
Next Article
The Top 1% of Wealth Canada
  • Create Wealth (Investing)

The Top 1% of Wealth Amounts for Canadians in 2022

  • December 8, 2021
  • Jeff Wiener
View Post
You May Also Like
View Post
  • All Blogs

Top Tips on How to Retain Your Customers

  • May 17, 2022
  • Meg Rivera
men typing
View Post
  • All Blogs

4 Tips and Tricks to Make Your Remote Employees More Productive and Engaged

  • May 17, 2022
  • Meg Rivera
View Post
  • All Blogs

7 Ways To Build Your Confidence in the Business World

  • May 16, 2022
  • Meg Rivera
open signage
View Post
  • All Blogs

Stealth Tactics for Entrepreneurial Success

  • May 16, 2022
  • Meg Rivera
contract
View Post
  • All Blogs

Tips On Not Letting Low Credit Stop You In Times Of Need

  • May 16, 2022
  • Meg Rivera
man driving
View Post
  • All Blogs

The Most Important Consideration When Choosing Auto Insurance

  • May 16, 2022
  • Meg Rivera
sofa
View Post
  • Growing Profits

10 Cheap Renovations That Can Add Value to Your Property

  • May 16, 2022
  • Meg Rivera
Collaborative work Software engineers website developer technolo
View Post
  • All Blogs

How To Build a Successful Partnership with a Tech Company

  • May 16, 2022
  • Meg Rivera

Join 6,472 Entrepreneurs That Get My Business Building and Wealth Creation Posts by Email

I can teach you how to build a successful, profitable business, and turn that into millions in personal wealth.

Thank you for your interest in THE KICKASS ENTREPRENEUR'S GUIDE TO INVESTING. Three Simple Steps to Build Massive Wealth with your Business's Profits. Please check your email to confirm the book download. Form: 400529

There was an error submitting your subscription. Please try again.

We won’t send you spam. Unsubscribe at any time.

Recent Posts
  • 1
    Top Tips on How to Retain Your Customers
    • May 17, 2022
  • men typing 2
    4 Tips and Tricks to Make Your Remote Employees More Productive and Engaged
    • May 17, 2022
  • girl petting a dog 3
    How to Decide What Type of Pet-Related Business to Open
    • May 17, 2022
  • 4
    7 Ways To Build Your Confidence in the Business World
    • May 16, 2022
  • open signage 5
    Stealth Tactics for Entrepreneurial Success
    • May 16, 2022
Featured Posts
  • how to become wealthy
    The Entrepreneur’s Secret to How to Become Wealthy and Build a Personal Fortune
  • Most Profitable Small Businesses
    27 of the Most Profitable Small Businesses to Open in 2022
  • Become a Decamillionaire
    How to Become a Decamillionaire, Grow your Net Worth to $10 Million, and Join the 1% Club
Categories
  • All Blogs (845)
  • Canadian Financial Products (4)
  • Create Wealth (Investing) (106)
  • Entrepreneur Interviews (21)
  • Featured Post for Main Menu (4)
  • Featured Top Posts (23)
  • Financial and Investment Calculators and Economic Data (79)
  • Fitness (1)
  • Growing Profits (59)
  • Growing Revenues (98)
  • Growing Revenues (63)
  • Marketing (77)
  • Millionaire and Business owner interviews (2)
  • Positive State of Mind (63)
  • Real Estate Investing (13)
  • Retirement (13)
  • Reviews (12)
  • Sales (14)
  • Sell Me This Pen (7)
  • Selling your Business (13)
  • Startup Ideas (6)
  • Technology (8)
  • Top Products (4)
  • Uncategorized (43)
Follow us
Author
Jeff Wiener
Jeff sold his company to private equity in 2017 and is now semi-retired. Jeff spends time…

    CHECK OUT MY BLOG, AND SUBSCRIBE

    about
    The Kickass Entrepreneur

    Expand Your Business, Improve Profits, Create Wealth

    Expand your business, improve your profits, and create wealth. Each one of the three can be elusive goals. Follow the right steps, and you, too, can create financial independence. It is possible … you just have to take the right steps.
    NAVIGATION
    • About
    • Blog
      • All Blogs
      • Create Wealth (Investing)
      • Entrepreneur Interviews
      • Featured Top Posts
      • Growing Profits
      • Growing Revenues
      • Marketing
      • Positive State of Mind
      • Real Estate Investing
      • Retirement
      • Sales
      • Selling your Business
    • Book
    • Courses
    • Podcast
    • Resources
    • Contact
    TAGS
    apartment BATNA Business business failure business growth business sale Capitalization Rate CAP Rate cash cash flow Creating Wealth Discipline entrepreneur entrepreneurship excel Featured goal setting Growing Business investing investment real estate M&A marketing Marketing KPIs Mergers and Acquisitions | M&A | Entrepreneur Blog Millionaire millionaire next door mistakes MUR Negotiation Peter Principle Profit profitability real estate retirement revenue Revenues sales sales management Semi-Retirement Blog | Entrepreneur Blog | Small Business Blog small business Stagnant stocks success Thomas Stanley wealth
    RECENT ARTICLES
    • sofa
      10 Cheap Renovations That Can Add Value to Your Property
      • May 16, 2022
      • No comments
    • keys
      Understanding the Different Types of Investment Properties
      • May 13, 2022
    • cryptocurrency
      How Investing From Home Is Made Easier Using ASIC Miners From CoinMining Direct
      • May 13, 2022
    • Savings & Financial Planning
      Quick Guide on How Much Saving Should You Have By Age 25?
      • May 12, 2022
    • Employee Benefits Career Concept. Business Bonus Work Perks.
      5 Practices For An Effective Employee Compensation Strategy
      • May 11, 2022
    • Dropshipping
      Steps To Grow Your Dropshipping Business
      • May 11, 2022
    The Kickass Entrepreneur
    • Coaching
    • Book
    • Blog
    • Contact
    • Privacy Policy
    • Terms
    • Disclaimer
    • Facebook
    • LinkedIn

    Input your search keywords and press Enter.