Sales, without Margin, is not really a Sale!

No one can afford to ignore the margins that their business makes. You can spend all your time and energy putting everything you have into your business, however you may end up with nothing to show for it, if you don’t maintain strong margins.

The most obvious solution to maintaining strong margins and to reduce costs creeping up, is to increase your RRP.

Raising your RRP is far more cost effective than trying to win new business. You may lose some clients that purely shop on price but that leaves room for new clients that are more interested in paying for the true value of your product or service.

Increasing your selling price ensures that you compete on other areas within your business; such as customer service, product range i.e. what sets you apart from your competition.

Fixed cost increases such as inflation and wages will eat into your margins. Holding firm on the true market value for your product and or service, in line with your competitors, will see your margins being maintained.

A few years ago, I worked with a franchisee.

The franchise owner had been in business for around 10 years and have never increased their RRP for their core product range.

They would not allow the franchisee to exceed their maximum RRP. The franchisee had multiple outlets and had seen increases in their operating expenses without increases being reflected in the RRP. Their margins were being squeezed tighter and tighter.

The franchise owner claimed that tightening market conditions forced them to keep prices low. Eventually, we had success and they performed a market review of pricing. The franchisee received their first price increase in 10 years. It had virtually no impact on sales and it contradicted the franchisor’s position.

We continued to push for a strategy of regular price rises or at least a market review every 6 months. We also pushed for a cost review of things that were in their control i.e. cost of goods sold.

We saw a growth in sales and a decrease in the cost of goods sold, measured as a percentage of sales.

Unfortunately, for the small business owner the franchise was sold to a national chain and most of the hard work was lost.

Moral of the story, customers expect price rising as a natural part of doing business so long as they are fair and in line with market conditions.

Review your costs and the margins you make on your Top 20 products or services – knowing your numbers is essential to business success.