Neville Stein on ... increasing your profit margins

Living in a largely rural county I often get to meet farmers, and being someone who likes to get straight to the heart of the matter, I always ask them about their profit margins. To a man they have all been able to give me an accurate summary of how profitable their enterprises are.

Why is this? Simply because for many years farmers have been operating on very small profit margins - and in order to make even a small profit, costs have had to be measured and controlled very accurately. I'm sure that the pig farmers I know would love to get the same percentage margin that is achievable on plants.

It is encouraging to meet people who have a "handle" on their profit margins because I know that those who do stand more chance of increasing their profits. The old adage "If you can't measure it, you can't improve it" really does make sense in this case.

Ask most people in our industry about how well they are doing and they will most likely talk about the level of sales. That's fine - sales are of course very important, but they tell only half of the story.

Like many businesses, although my sales went up last year my net profit did not go up in proportion, mainly because of all the extra charges when I buy a low-cost airline ticket - oh, and of course the increased fuel costs.

So whenever we talk about how well it's going, let's start putting the focus on our profit margins. This means not only looking at how we can increase the prices of our products but looking at controlling the cost of sales, reducing wastage and removing the under performers from our product portfolio. You will only be able to do this if you implement more measures to collect data.

By benchmarking your measurements against similar businesses you will increase your profit margins. The best way to do this is to join a business improvement scheme. It might make all the difference - you may even be able to buy that Ferrari you have always promised yourself, or at least be able to afford a tank of fuel for your regular car.

Neville Stein is managing partner at the Ovation Business Consultancy.

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