Profit margin gauges the degree to which your business activity makes money, essentially by dividing income by revenues. When your profit margin is not at the expected level, a variety of factors can be at play. If your profit margins fall below your projection, the solution generally involves reducing costs and increasing sales. You will need to assess why and then focus on effective corrections.

Gather Insight From Your Annual Trends

Check your profit and loss statement from the past three or four years to look for patterns. What drives that profit each year? Are there seasonal surges or lulls that you had not noticed?

Analyze Sales Declines

Check your sales declines across the months and years of your annual statements. Possible reasons could be...

• Salespeople motivation

• Poor marketing and sales alignment

• Old-School selling techniques

• No, follow up

• Poor training

• Ignoring your competitors

• Lower demand during certain seasons

Brainstorm solutions to reduce the impact if any of the circumstances are still a factor.

Reduce Expenses

You always have measures to control what your company spends. Material cost and operating cost are areas that have the potential for cuts and reductions. Is there a way to comparison shop or ask for discounts on your raw materials? How about your rent or shipping services? Controlling your spending can make a big difference in your bottom line.

Consider a Price Adjustment

When pricing is an issue you have two choices. One is to lower prices and the other is to raise prices. Both can be effective, but it depends on the type of business and your customers' tolerance level. One of the secrets to business success is pricing your products properly. Price your products correctly and that can enhance how much you sell, creating the foundation for a business that will prosper. Get your pricing strategy wrong and you may create problems that your business may never be able to overcome.

Consult a Professional

If after you look at all your profit margin and are baffled about what to do consider hiring a professional accounting service to help. Many businesses have so much on their plate that they often lose sight of what’s most important to business success: cash flow and financial performance. This results in poor business decisions and costly errors, which stunts business growth. An outsourced accounting firm can bring an objective view to the situation and see what you are not able to see.

Contact us (859-344-6456) for a consulation!

--

James E. Wilson, CPA is a team of professionals provide innovative financial solutions designed for today’s business owner. Our advisors treat each client relationship with the loyalty and care required to properly advise you now and well into the future.

Learn more