Running a successful business is all about profit margins. As the cost of doing business fluctuates, so does your bottom line.
Keeping your business going means constantly monitoring and improving your returns. Check out five questions and answers to help your business on its way to increased profit margins.
A profit margin is simply how much money you make on a particular item or service versus what it costs you to produce. Calculating profit margins is an essential to bringing in more money than you spend–and determining how to run your business.
Some costs may seem obvious, like the amount of flour and sugar in a cupcake. Other costs, like refrigeration or labor, may be less simple to quantify per item, but still need to be factored into how much profit you ultimately reap.
It’s no news that the costs of doing business are up. Supply chain disruptions continue to be a persistent problem, so raw materials are still more expensive to obtain. Gas prices are up, so shipping is more costly, too. And labor costs are higher as well.
The inflation rate is also higher than it’s been in decades, which means price tags are hiked up even more than they already would be.
All that means profit margins are getting squeezed, and businesses make less on items that now cost more to produce.
Start by determining which products and services deliver the highest profit margins for your business. Clover Reporting tracks sales by item, so you can see which items are your most popular. Sales reports also track item costs, so you can identify your profit margins.
Figure out which items are both popular and bring in higher profits than other products, and ideate how you might be able to promote those products more to boost sales. Also watch for items that aren’t worth their investment, whether because they don’t sell or cost more to make than they’re worth.
If you offer a popular item with low profit margins, the volume of sales may add up to be worth the cost. Or you may consider that a particular low-profit item tends to generate loyalty or sales of related items with higher margins.
Although businesses are getting pinched, there are strategies you can use to keep your profit margins where you need them.
Clover Rapid Deposit is helping merchants everyday manage cash flow better–learn how it could help your business. And, be sure to take a look at more ideas about how you can recession proof your business.