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4 Ways to increase profit margins

a group of financial people sitting around a table

Boosting your revenue may be a priority, but you should never lose sight of your profit because it’s this that answers the critical questions about your business, such as whether you’re making money or pricing your products properly. 

It’s also important to note that your profit margin isn’t just something to measure but rather to continually work at improving.  

Increasing your profitability comes down to two things: increasing income, and/or reducing expenses. You can increase income through sales, your profit margin, or the Pareto Principle (80/20 rule), and you can decrease expenses by lowering costs and purchasing more effectively.

Increase sales

To increase sales, you can: 

• Increase prices

• Find new customers

• Sell more to existing customers

• Run promotions to boost sales volumes

• Develop new products or services

• Sell to new markets


Target your most profitable customers

The 80/20 rule (or Pareto principle) tells us that around 80 percent of your profit is gained from 20 percent of your products or services. Similarly, 80 percent of profit is often also gained from 20 percent of your customers. This will help you prioritise which clients to serve, as well as the biggest expenses in your company.

You can apply the 80/20 law to everything, from invoicing, expenses and costs, to customers and sales. 


Increase your profit margin

The first way to do this is through value-based pricing. 

The amount a customer is willing to pay for a product or service is typically tied to the perceived value of whatever’s being purchased.  

By increasing your customers’ willingness to pay for your products or services, you can increase your prices without reducing your customers’ excitement about purchasing. In this way, you can boost revenue and enjoy increased profits, and your customers will stay happy. 


Reduce costs

One of the best ways to decrease costs is to negotiate the price you pay to suppliers. Strategies include buying in bulk or committing to future supply.  

Another is to watch costs, wasted resources, damage to company equipment and property, as well as unproductive operations. Slowly but surely, unnecessary expenses lead to a loss in profitability. 


For financial management advice that ensures your business is as profitable as possible, call Counteractive today.

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