Only Margin Pays

Break it down however you want, but the truth remains: there are only four ways to grow a business:

  • More customers,
  • More often,
  • More money,
  • More margin.

As a business owner, you know that only one of the “Four Mores” pays: more margin. Very little of the formula for business success is complicated. It may not be easy, but it is simple. Consider how to grow your margin: you can raise your prices or lower your costs. The key to success is to work with both sides of this equation. Be aware of your costs and watch for the same or better product at a lower cost. That’s not to say you shouldn’t be loyal to your vendors, but one of the best ways to lower your costs is to consolidate purchasing with fewer vendors. As the volume of business that you do with them grows, they are likely to reward you with better pricing. Take the time to calculate your margins on a regular basis — monthly, for example. You should break out your costs into the same categories that you use to categorize your sales. Total gross margin makes a great indicator for the overall profit health of your business. But when troubleshooting, changes and improvements are necessary, you have to address those at the department level. This means you’ll need to calculate gross margins for each department in your business. On the other hand, the prices that you charge your customer need to be competitive. When gauging the effectiveness of your pricing structure, listen to your customers and shop your competition. While price is commonly one of the first questions your customers will ask, it’s not necessarily the key to customer satisfaction. Your job is to create value for your customers and finding a winning balance between cost and price helps build a strong business foundation.