How to Increase Profit Margins Quickly

By: Gen Wright

Any savvy business owner would immediately agree that when it comes to running a profitable business, it all comes down to the margins. The greater the margins, the more profitable the business. Note that it's not gross revenues that is important here - it's net profits that matter.

Having higher margins mean having increased net profits. There is little point boasting of gigantic gross revenues, when profit margins are dwindling. If that is the case, the business isn't making much money, and it's probably not worth running.

So the question is, how to increase profit margins?

There are many ways to increase profit margins. You can try reducing expenses, automating operational processes, or simply by buying raw materials at a cheaper rate. All these measures are meant to achieve only one goal - to reduce the cost of producing each unit.

Often, businesses fail to improve their profit margins simply because they are not looking hard enough. Let's say your product needs a core component that cost $1 per piece. If you manage to find another source that offers $0.50 per piece, you just saved your Company a huge chunk of money. To make full use of the information in this article, here are some quick suggestions.

1) Buy a supplier database.

This is probably the best investment that you are going to make. You can buy supplier databases at dirt cheap prices. For example, a database with half a million China companies cost less than $50. Just be mindful that you don't buy the database and leave it to collect dust. Make sure you use it. Here's how you can make full use of the database.

2) Set up a specialized procurement team.

You need just two or three people in this department. They do nothing but find alternative sources for the components that you are using. An experienced procurement team can help bring prices down. They can negotiate with suppliers, and they can also build relationships. In the beginning, you may lose a bit of money by hiring procurement specialists. But in the long run, you will be making much more money.

3) Buy from countries with cheap labor.

Very often, your bid to win a contract depends on your quotation. If you can offer competitive terms, and still enjoy a decent margin, you have a very good chance of being successful in business. Try as much as you can to source for products and services from countries with low labor (like China). You will be surprised at how cheap the prices can be, especially when you buy in bulk.

Savvy business owners know that when they buy low, it's almost a sure win deal. And who doesn't like risk free deals? Even when you resell the products at a low price, you still make a handsome profit. That is every businessman's dream come true.

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