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By Numbers Blog

Improving Profit Margins

Are you happy with your company’s current profit margins? Do you want to set your business up for long-term financial success in these unprecedented times?

As a business owner, profit margins are likely a top concern for you. If you’re not sure how to improve them, though, it can be easy to feel overwhelmed or unsure of how you’re going to keep your business afloat.

Read on for some ideas on how you can improve your company’s profit margins. They’ll help you to start running a more profitable business now and well into the future.


A profit margin is a ratio that compares your business’s total profit to its total revenue. It tells you the percentage of sales that the company gets to pocket once all expenses are paid.

Understanding your business’s profit margins gives you important information to work with when you’re sitting down to strategize with your small business accountant or bookkeeper. It helps you understand how the company is performing and makes it easier for you to make smart business decisions moving forward.

To calculate your profit margin, divide your net profit (or net income) by your net sales (or revenue). For example, let’s say you brought in $50,000 last month and have $35,000 in expenses. The net profit would be $15,000. When you divide $15,000 by $50,000, you get a profit margin of 0.3 or 30 percent.


If you’re not happy with your profit margins, there are plenty of ways you can increase them. Here are some of the most effective options to try:

Raise Your Prices
One of the most straightforward ways to improve profit margins is to increase prices. This is often easier said than done, though. After all, raising your prices too much could end up alienating your customers and reducing your overall sales.

To avoid finding yourself in a situation like this, do some research before you change prices. Find out what your competitors are charging and consider whether your prices align with the industry standard. If your prices are lower than average but you’re providing the same quality as other businesses in your area, it might make sense to go ahead and raise prices.

Reduce Your Expenses
In addition to raising your prices, you might also want to look for ways to cut expenses. Talk to the team at Hall Accounting about your current spending and go over your statements to see if there are any options for reducing expenditures.

Keep in mind, though, that cutting expenses by too much can lead to a subpar experience for your customers. If you start using materials that are of a significantly lower quality, for example, people might not want to continue shopping with you.

Speed Up Production
Speeding up production allows you to serve more people and take on more work. This, in turn, can lead to higher profit margins.

If you run a small restaurant, for example, speeding up production might look like speeding up the process of serving customers so that you can accommodate more people. To accomplish this, you might need to hire additional workers so you can serve more customers and shorten their wait times.

Reduce Churn
The term “churn” refers to the number of customers who stopped patronizing your business within a certain time frame. You can calculate your churn rate by dividing the number of churned customers by the total number of customers you’ve had in a specific time frame.

If you’re not happy with your churn rate, think about the reasons why your customers might be leaving (subpar products, lack of customer support, slow delivery times, etc.). Then, look for ways to address these issues and keep them around long-term.

Focus on Retention
Speaking of keeping customers around, retention ought to be your top priority as a business owner. It costs more to attract a brand new customer than it does to retain an existing one, so you should be doing whatever you can to keep people coming back for more.

What can you do to retain your existing customers? Do you need to communicate with them more frequently or in more effective ways? Do you need to offer some kind of promotion or customer appreciation gifts to let them know you value them?

Upsell and Cross-Sell Existing Customers
Another way to increase profit margins is to upsell and cross-sell existing customers.

Upselling involves encouraging a customer to purchase a product that’s comparable to, but a higher-end version of, the one they’re currently purchasing. Cross-selling encourages customers to buy items that are related or complementary to the item they’re currently purchasing.

Both upselling and cross-selling provide you with an opportunity to increase revenue and improve profit margins.

Introduce New Products
Sometimes, the best way to improve profit margins is to introduce a new product or line of products. Expanding your reach and addressing changing customer needs will help you to stay relevant and keep people coming back for more.

Of course, the process of developing and introducing new products is costly. However, the investment might result in greater returns and better profit margins over time, which would make it worth the higher upfront expenses.

Reduce Waste
In addition to working with your accountant to identify unnecessary expenses, work with them and other members of your team to identify and eliminate waste.

Wasted inventory, wasted time, wasted resources — all of it eats into your profit margins. The sooner you can eliminate waste and streamline your business, the sooner you’ll be able to become more profitable.


As you can see, there are lots of steps you can take to improve your business’s profit margins. Keep these tips in mind as you work with your CPA or CFO to evaluate the company’s performance. They’ll help you make the best decisions that will lead to increased profitability.

Want to learn more about how you can make your business more profitable or handle company finances in a more professional way? If so, please reach out to Josh Hall at or Jeremy Hall at Jeremy.Hall@HallAcctCo.Com for more information. From tax filing strategies to tips on bookkeeping and accounting, we’ve got you covered.


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