How to increase small-business profit margins.

Small-business owners strive to build successful, healthy firms. Here are some profit strategies to increase revenue in a small business.

A man at a desk working on a computer.

For small businesses looking to improve profitability, simple but effective strategies are available. They include raising prices in smart ways and selling more by focusing on your most lucrative products and services. 

Increase your prices. 
This option might feel a bit scary for a small business with a loyal customer base. Will your customers feel betrayed? If you raise your prices, will they come back? These are reasonable questions to ask, and they are also ones that can be easily addressed. Obviously, nobody wants to pay more, but, if you think about it, people choose your business for many reasons beyond cost, such as: 

  • Your great reputation. 
  • Excellent customer service. 
  • Location. 
  • Your quality and selection. 
  • The expertise you bring to bear. 

Let's do a little thought experiment: Think about why you frequent the businesses that you do. Surely there's a business you love because it is right down the street, and surely there is another that treats you right every time. With both, it is not the price that is the dispositive factor, is it?  The secret here is, if you want to make more money, you can, and safely, by raising your prices. Don't be afraid to be candid with your customers about the price hike. Honesty truly goes a long way, and most everybody can understand an occasional price hike.  If you still aren't confident that customers will stick around after a price increase, you can test the increase temporarily, commitment-free, and see if it flies. If it does, away you go.

A man at a table looking at fabric measurements in a fabric shop.

Sell more to increase profits. 
Maybe increasing prices isn't the right choice for your business for whatever reason. In that case, there is another way to increase profits: Sell more. Pretty simple, right? Have you heard of the 80-20 rule? According to the 80-20 rule, 80% of your sales come from 20% of your products/services, or from the top 20% of your customers. 

So there are two questions for you to address: What makes up your top 20% of products/services? And do you know who the top 20% of your customers are? Once you can pinpoint the answers to these questions, you can figure out where your most lucrative sales are coming from. And from there, you will know what products and services to concentrate on. Look at what types of things the top 20% of customers purchase the most, and double or triple  

The other surefire way to sell more is to lower your prices. Have a sale. Offer discounts to your best customers, or launch a loyalty rewards program. Apply an across-the-board price cut. Of course, when lowering your prices, be sure to advertise it. All of this then poses the question: When should you raise prices? 

  • Lowering prices might get you more customers, but customers with less to spend. 
  • Raising prices can get you in front of fewer, but more affluent customers. 

Be sure that the route you pick reinforces your desired brand. The bottom line is that although making a profit sometimes feels like climbing a mountain, if you use either of the options above, it becomes a mountain you have the right tools to climb!

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This is for informational purposes only. The ideas, opinions and concepts expressed here should not be construed as specific advice. You should consult your professional business advisors regarding your particular situation.