While there are many factors squeezing your net profit margin that are out of your control – Brexit and the COVID-19 pandemic to name but a few – there are ways you can make a difference. Understanding and controlling your costs is one and implementing tighter margins is another. But to do this, and to make a real impact on your bottom line, you need to get your business software working for you and increase profit margins.
We’ve been working with merchants & wholesalers for 28+ years and know your industry better than anyone. We know how important margin is to your business and understand how the daily demands of running your business don’t always enable you to take a deep dive into your costs and margins.
So we gathered up our sales people and consultants and asked them to come up with the best ways to improve net margin through effective use of your business software. And this is what they came up with…
1. Understanding your Costs
Everything you spend money on is a cost but it is how you manage these costs in your business software that makes the difference. Are you using average cost, weighted cost, landed cost, last cost, first-in-first-out or another? People have different opinions on this but as long as you understand as a business what you’re deeming as your cost, you can set your system up to calculate it. If you don’t know your cost price, you can’t possibly work out a margin. So get this right from the outset. Are you going to take into account currency fluctuations, freight, duties etc. How simple or complex is your system in handling this? These are all things you need to think about.
2. Control user access & capabilities at the point of sale
It’s not always easy to monitor each and every sale, especially if you have multiple sales people at different levels of responsibility. The easiest way to control what they are selling and at what price is to set up a maximum discount amount or a maximum discount percentage per user or role. This enables you to effectively control the scope users have to reduce pricing at an acceptable level for the relevant roles within your business. Depending on the responsibility level, you can adjust their capability to give away margin. For instance, senior operators can override a rule to enable a better discount. This can be password controlled or require an authorisation routine.
You may also like to protect your margin by creating additional buffers on a user’s profile or on a product so an inflated cost is shown. This can be achieved by utilising a selling cost start price that can be buffered by either amount or percentage.
Are you getting your staff to actively sell alternative products with better margins? This is something every business should be doing. Use your customer facing staff to sell products with better margins by simply highlighting them to your users at the point of contact. This is a great way to improve margin and should be easy to set up in your system.
3. Set up products right
Putting the time into setting up your products right is key to protecting and maintaining your margin. By setting maximum discount allowed & minimum margin on products, you can block, warn, get confirmation or require authorisation before a transaction is progressed. Again controls such as these enable you to act faster and smarter to boost your company’s bottom line. For easy maintenance, we recommend using derived pricing so that any change in cost is carried through your pricing. This can ensure there is no creep in reduced margin in the event you have price increases.
4. Highlight Special Offers and Promotions
Customers love special offers and promotions but if they get to the till and it doesn’t go through or there’s a delay in administering it that can be a blot on your record. It’s imperative therefore than when offering discounts or promotions that your system accurately reflects pricing and offers. It is essential that you control this from within your system, dictating a start and end date of the offer. Your customer will appreciate it and your staff will appreciate it.
5. Buy Better
A key element to retaining or improving margin is how well you manage purchasing. You should be utilising the information your system is generating to ensure you maximise the margin attainable by buying well. From availing of system recommended purchase orders including alternative suppliers or cheapest price to managing your rebates, you can maximise the margin available through the implementation of key system controls.
6. Effective reporting in real-time
Reports are important but in most cases tend to focus on events that have already happened. It’s time to ask ‘How do I want information delivered to me?’ Is it by day, week, month or instantly as it happens? Is it by email, text or direct to the printer? And when you work that out, you need to know how are you going to use the information you get? There’s no point in getting reports or alerts set up if you’re not going to read them or react to them instantly. Many business owners find themselves reading reports that are already out of date or receive them too late to react to. It doesn’t have to be this way.
Modern ERP systems can deliver what you want, when you want it and in the format you desire.
For example, if one of your staff is about to sell below margin, you can get an alert on your phone and react immediately to the situation. Your store manager may wish to report on sales below margin and by rep which he can then challenge what they are giving away. The possibilities are endless so put some thought into what information you want and how you want to receive it. It is only then can you effectively report on your margin and act upon the information your receive to put effective controls in place.
7. Negotiate price lists per customer
In many instances, customers do not pay a standard list price. Instead, the final price is determined through a process of negotiation between buyer and seller. Rather than leave every interaction you have with a customer a battle on price, you should set up individual customer price lists. Here, you can set individual discounts on regular purchases and standard prices on all other products thus protecting your margin.
8. Empower your field-based sales reps
Your reps need to have the correct information to hand at all times. Modern ERP systems can provide a fully integrated sales rep app that can enable them to operate both online or off-line depending on connectivity and give them access to all pricing as per the customer’s price list. This ensures your sales rep is fully self-sufficient and no longer relying on the office for confirmation of orders or information on availability etc. Again, this adds to your customer service, pricing controls and reduces your reps reliance on office staff.
We hope this blog has demonstrated that a few changes in your business software can significantly improve your bottom line.
Take some time out from the daily grind of everyday business to take a closer look at the margins you are attaining. See where improvements can be made. Where is margin being lost? With a bit of work and some tweaking of your business systems, you could really boost your bottom-line. And once they’re set up, you won’t have to worry about leaking margin again.
To help you get started we’ve put 10 best ways to improve your net margin into a simple infographic which you can download by clicking on the link above or the image below.