Many business owners have no idea what their profitability should be. That is partly because profit margins come in multiple flavors and are often presented in overly complex ways. Which margin is the most relevant to your needs?
Advisors argues that small business owners should pay most attention to net profit margin. Calculated by taking the company’s total sales for a given time period, subtracting total expenses, and then dividing that figure by total revenue. Net margin helps to focus on sales and revenue trends, helping you uncover weaknesses that are not apparent from top-line numbers.
Variables that affect net profit margin can be controlled – or at least influenced – by business owners. While you can’t force your customers to spend more of their hard-earned money, you can trim unnecessary costs. The trick is knowing which costs are safe to cut, and by how much.
Here is a look at some easy ways to expand your small business’s net profit margin by reducing common expenses – without hampering mission-critical activities or crippling your company’s ability to grow.
Even if you have a dedicated finance team that understands the cost accounting process, identifying the most effective ways to reduce spending can be challenging. Cost control is one of the best ways to keep your business in shape, so it continues to perform well in a variety of economic environments.
Here are a few of the Tactical Strategies to reduce expenses.
You need to evaluate where your business is now and where you want to take it in the future. A well-conceived plan is essential to properly forecast expenses and provide for contingencies.
You need to understand your historic costs before planning. This requires gathering data in an effective and efficient way. Tracking your costs needs to be an integral part of your ongoing operations.
Look at your company’s past variable expenses and calculate what percentage of sales they represent. Historic percentages provide both a good indicator of potential future costs and a benchmark to use in keeping those costs in line with selling activity.
Get ahead of the curve and start taking the steps necessary to be able to look at your current state as well as a future state. Then you can put yourself in a position to enact these cost-saving measures for your company on more than likely one of your largest and most difficult software spends.
Proactive companies that act now will feel less impact as things progress in the world. We want to help make sure you are doing all that you can to get through these economic times. What is your ideal profit margin?
Call now for your free consultation to learn how we can help grow your business!