If you want to know how to ‘squeeze the fat’, ‘make more money’ in your business doing EXACTLY what you are doing right now (with a few slight tweaks), then don’t stop reading now… we’re about to share the love with the 10 Ways to Increase Profit Margins in your trade business.
1. Better negotiation skills
Negotation can be the difference to saving your business hundreds, if not thousands of dollars a year, therefore it is wise to learn this skill and use it to the benefit of your business.
There are many different definitions of negotiation. We could say that negotiating is ‘reaching an agreed settlement between two or more parties’ or ‘reaching a compromise between conflicting needs’.
Negotiation skills are extremely important for business success, and can play a large role in personal affairs as well. If you’re a good negotiator, you can find equitable ways around difficult situations, help your business thrive, and even improve relations with your spouse or family.
Poor negotiators, on the other hand, tend to make bad situations worse and have a tough time making headway with complex issues. It is therefore imperative for management success to master this skill.
Its astounding the number of small businesses that ‘do not’ check their invoices, not even a glance. In fact the bills are received by their business and they simply add them to the pile ‘to pay’.
How do you know the invoice is right? “Computer generated invoicing” you tell me. So are you saying that the computer is always right? That the person entering the information into the computer never makes a manual error?
Yes, food for thought.
This is a great topic for increasing profit margins and one in which we have had plenty of hands on experience.
It is critical you scan your eye over your business invoices as they are received by your business. If you don’t, it could cost you thousands of dollars.
Checking your invoices certainly should not stop at your supplier invoices. Consider what cost savings you may gain by glancing your eye over your phone invoice, IT invoice, in fact any and all invoices that are sent to you business.
Now we never said that it should be you that checks these invoices. If you have staff, consider how you can leverage your time by delegating this checking process to your team. This will free up your time to focus on profit producing tasks.
3. Do it right first time
Why waste valuable time and money returning to a job when you could have done it right first time? It is important to take pride in your work and ensure the job is complete before you leave the job site.
Why is this so critical? Because the act of having to return will cost you both time and money. Let me explain why…
The act of having to return will not only infuriate your customer, it will cost you any additional word-of-mouth work that you may have attracted through this disgruntled customer. Bad for business! The act of having to return will cost you money simply because you are unable to move onto any new work and hence consumes valuable time that you could have spent competing this additional work and/or working on profit producing tasks within your business.
Make better use of your time by competing work to a high standard and ensuring the job is done right first time.
4. Keep overheads to a minimum
‘Trim the fat’
Sit down with your bookkeeper once every 3 months and review your profit & loss statements line by line a quarterly report and annual report in comparison to last year’s same period.
Let me give you an example: Hypothetically it is the 2nd week of April 2010.
Print one report that compares:
1. A quarterly report, January – March inclusive report for 2010 and
2. A quarterly report, January – March inclusive report for 2009
With a ruler in hand, we review every line and compare the expenses.
Write notes to the right in red pen to explain why some expenses were higher than same period of the previous year.
Basically, why have the rates increased or decreased.
Complete this exercise comparing a full year, even monthly if required. Once having completed this exercise and having gained a good grasp on the expenses it is time to ‘trim the fat’.
You would be surprised how quickly expenses creep up. You commit to many individual small purchases that collectively equate to a large sum of money.
It is for this reason you need to review your profit & loss statement to
ensure you have a really good grasp on the expenses within the business
make cuts where possible, reducing spend where you can
You will be surprised how much you can trim when you keep on top of this and understand the costs of the business. $50 here and $200 there can end up saving you thousands. I challenge you to trim the fat in your business!
5. Know your actual costs
It’s amazing the number of small business owners that have no idea about their financial position of their business.
Let me ask you this: when it comes to your profit & loss statement, do you know exactly what is within each line?
What expenses make up the $2,000 for stationary or $12,000 for vehicle costs? I am sure you would be surprised if you went through this report line by line to really get a grasp of how your costs can creep up month by month, year by year, until suddenly, there is no profit in your business at all!
6. Lower dollars tied up in inventory
Did you once think that holding a warehouse filled with stock will save you both time and money?
There may be additional issues:
– The requirement of an employee to manage stock control (supplier to base, base to each vehicle)
– The employees wage
– The computerised system or other to manage the stock
– The security required on the building and the amount of money tied up in inventory (hence having a negative effect on cash flow) and the list goes on.
Weighing up the cost, it may be far cheaper, more cost effective and profitable to reduce the stock in your warehouse and purchase individual stock requirements by vehicle direct from your supplier.
To take this one step further, develop a materials list that became the standard for every vehicle. A list that assisted re-stocking requirements and prevented both over and under stocking of a vehicle, both of which would cost your business money.
Do you have too much money tied up in inventory?
Is it costing your business $$?
Have you ever thought that you’re costing the business money by staying up late entering receipts from a shoebox? Maybe it’s time you looked at hiring a bookkeeper.
If you’re spending time doing a technical task at the rate of $150 a hour, when you could have a professional, someone who loves, enjoys and is knowledgeable about the book work at the rate of $50 an hour. And let’s be honest…do you feel this way about this particular task?
Do you enjoy entering receipts, completing your BAS and wasting hours on something that you procrastinate to even do in the first place? I am guessing the answer to this question is a big fat NO…
And when you are in the business to make money, does it not make more sense to have someone complete this task at the rate of $50 so that you can go out and earn $150 within the same one hour? After paying the bookkeeper you’ve still made $100!
Having a book keeper will help you:
1 – leverage your time more productively (the bookkeeper works while I work during the day) and for every hour you both work you still earn $100. (now that’s a no brainer!)
2 – ALWAYS know my financial situation thanks to updated financial input.
2 – Spend nights with the family, beers with the boys or simply doing OTHER things that you have missed out on. No more late nights doing a job you hate!
LEVERAGE is the vital key here – to use your time and money more efficiently and productively to make more money!
It is through the leverage of employing a bookkeeper that can help you earn more money.
Have you given any thought to what else you can outsource that will leverage both your time and money?
8. Reduce duplication
Take this as a scenario: plumber 1 and plumber 2 attend a job together. They both greet the customer and get to work with a list of issues in and around the house. This is what they do.
Did you happen to note that both plumber 1 and plumber 2 completed the exact same list but just in a different order? Do you think they wasted time by viewing the same work? Was there a better way of working to ensure they did not double up on work and saved both time and money?
Wonder what the customer thought of them watching them both scurry around the home crossing each others path to complete the work?
Duplication can be removed in your business when two tradesman work together. One tradesman is always considered ‘in charge’. The ‘in charge’ tradesman would allocate the pieces of work between the two to ensure this duplication and double up of work does not occur. This ensures the total job is completed in best possible time saving money for the customer and maximising time for our business.
In short, time is money, so maximize the time you do have through reducing and in fact removing any duplication of work to assist in increasing your profit margin.
9. Regular/timely accounts
There is no question that your diligence and dedication to complete and send out regular and timely invoicing will assist with cash flow for your business and in turn will increase profit margins.
Being slack or slow with sending out invoices immediately slowed the payment process and increases the manual hours required to chase payments with ongoing statements, phone calls and the like.
To ensure you prevent consuming your profit through the increased hours of follow-up required then we suggest you keep up to date with your invoicing and provide regular and timely accounts to your customers.
10. Re-negotiate credit card transaction fees
How 5 minutes of your time could equate to $39,000 in your pocket.
You’ve arranged a credit card machine for your business to ensure you provide options for your customers. Great idea and your customers will love you for it.
The problem with this is the fact that it costs you money. Yes, a credit card transaction fee % on each and every sale. The bank dictates this value and it is non-negotiable.
Or so you think…
A five minute call to your bank could result in a reduction of your credit transaction fee by over 3%.
Hypothetically, on a single $200 purchase that’s a $6 saving if all purchases were paid with a credit card.
When the business averages 5 jobs a day, 5 days a week for 5 vehicles this saving equates to 125 jobs per week x $6 = $750 a week.
$750 a week x 52 weeks a year = $39,000
Have you got 5minutes to potentially save yourself $39,000 a year?