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50 Ways to Increase Your Gross Profit Margins


One of the biggest impacts the Internet is having is on pricing. everyone for increasing
With the advent of online exchanges and readily available margins by a point over the
information, pricing information is more widely known than prior quarter.
ever before. Furthermore, buyers have access to more suppliers
than ever before and thus they are using the Internet to reduce 4) Drop the losers. Your
their costs. The bottom line is that gross profit margins are marketing staff and financial
under more pressure than ever before. Thus, everyone is organization can identify the
seeking ways to increase their margins, to increase or hold the losers in your product line in
line on their margins. The following is a thought-provoking list terms of margins. Those
of 50 ways to increase your margins. While all of these may products that have slow
not be appropriate to all business situations, if even one of them turns and low dollar
is successful at raising margins, it’s a worthwhile exercise. contribution margins are the
products you want to drop.
We have found that pricing is an opportunity often missed by
too many companies. The lack of focus and senior management 5) Push the winners. Have you
involvement often results in missed opportunities to increase published a list of the
margin dollars. Remember too that pricing is a psychological highest margin products to
exercise and it is equally important to sell your team, as well as your sales team?
your customers, on your pricing strategies. Remember both percentage
of margin and dollars of
margin are important to
50 Ways to Increase Your Gross Profit Margins identify.

1) Implement programs to reward sales professionals based upon 6) Run contests on your high
gross profit margin dollars and not sales volume. Getting that margin products. If you are
extra couple of points means trying to increase the margin going to have a SPIFF or
every day on every product on every sale . Your field personnel other incentive, make sure it
have the opportunity to do this; thus giving them the incentive is on your high margin
is critical. However, avoid a pitfall by rewarding margin products.
dollars not margin percent!
7) Reduce your product costs.
2) Focus attention on one or two points of margin. Every day Go to your suppliers to see
you and your management team must reinforce the need to if there are further cost
squeeze that extra point or two of margin out of every product decreases you can obtain.
sale. Educating your team will help draw their attention to the One way to do this is to take
fact that they can make a difference. the volume you are giving to
two or three suppliers and
3) Contests or promotional programs. To help focus attention on
gross profit margins, think about running sales promotional 50 Ways to
contests based on margin dollars. For example, rewarding Increase
GPM 1-7
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TO P I C S U M M A RY F RO M S TO R M M A N AG E M E N T

give 80% to one vendor who often go unnoticed by your profit margin contribution.
gives you better service, low people and customers. This Getting that extra point or
prices, better terms, on-time will result in more than 1.5 two of margin means that
delivery and agrees to points of margin. Small you must work full time on
promotion, displays and movements in prices equal your prices. Hard work,
product returns. big dollars to the bottom dedication and focus on this
line. area by your team is the
8) Ask for the “French fries” only way to get that point or
with the sale. Train all 12) Minimize Discounting. two of margin which is so
sales personnel to push a Train your sales people not important to your bottom
specific high margin add on to automatically jump to line.
product/accessory service 10%, 15%, or 20%
on each sale, thus discounts. Rather, they 15) Product Mix. Product mix
increasing your total should use “retail” pricing. shifts (even subtle ones) can
revenue and gross margin For example, a specific have a major impact on
dollar contribution per sale. dollar amount ($10.87) your gross profit margins.
might only amount to an 8 Understand the dynamics of
9) Selling Up. Train your ½% discount, but have the your marketplace and what
people to sell up to the same psychological impact is happening to your
higher grade (and higher as a 10% discount. Every business. Understanding
margin dollar) product or point of discount saved is your business is critical if
add features to products the same as a price increase you are to focus on those
that typically carry higher and contributes to your customers, market segments
margins. Train and margin. and product lines that give
incentivize your people to you the highest gross profit
sell up. 13) Individually Price Items margins. You must then
Using “Retail” Pricing. develop marketing
10) Cross Selling. Here again, Very often when you strategies and implement
you want to drive up the computer-generate pricing, sales action plans to pursue
average dollars and margin you will arrive at a price the more profitable segments
dollar contribution per sale. which may be lower or of your business.
Your marketing people higher than a psychological
should develop lists of sales level – for example, 16) Fire Unprofitable
cross-sale items so that $13.01 instead of $12.87 or Customers. Some
when an individual requests $12.31, rather than $12.87. customers are simply not
a specific item they should Spend the time to go worth having. These are the
be sold the accompanying through your prices item by customers who demand the
parts, services and item to gain those extra lowest price, want extended
accessories to increase the margin dollars. Remember credit, demand superior
sale. this strategy works on you service, abuse return
and your customers every policies and delay or simply
11) Increase Your Prices Across day in your personal retail not pay for products or
the Board Subtly. purchases! services. The best thing to
Increasing prices several do is send them to your
times by a fraction of a 14) Change Prices Often. competitors. Establish a
percent often goes Pricing is a continual task. program to fire unprofitable
unnoticed. For example, You should constantly be customers. Review your
three increases of .005 over reviewing your pricing to customer base at least semi-
a 4-6 month period will see what areas you can annually!
increase, change discounts,
modify or otherwise 50 Ways to
increase your overall gross Increase
GPM 8-16
© 2000 ALL RIGHTS RESERVED STORM Consulting, LLC
TO P I C S U M M A RY F RO M S TO R M M A N AG E M E N T

17) Pay Attention to Small Items. Small items, such as 26) Discipline. Above all else,
consumables, accessories and service parts are often less price the development of pricing
sensitive as major items. Increase prices here while holding strategies, implementation,
the line on bigger, more noticeable products. maintenance and
administration is a
18) Selective Purchasing Strategy. Some of your customers use the disciplined process.
selective purchasing strategy. They buy only specials or cherry Obtaining that extra point
pick your line and then expect the same levels of service as or two of GPM does not
your more profitable customers. Guard against this with come easy. Dedication and
pricing strategies to protect your margins. hard work make it happen.

19) Pricing Levels. In most pricing systems, there are different 27) Beware of the “Black
pricing levels. It is often expedient for sales personnel who are Holes”. In most operations
anxious to increase sales to move directly to the lowest column there are ways that the field
pricing for all products. Sales management should assure that personnel can transfer
their sales professionals select the column pricing which merchandise, give rebates
applies to the customer. and provide incentives that
negatively impact your
20) Pricing Approval. You should establish a hierarchy of price margins. You should be on
approvals so that higher quality decisions on pricing will the alert to close the door
result. This is especially critical where custom pricing is on these abuses and put in
involved. The financial staff must be involved to assure place policies, programs
accurate cost information is available! and procedures to eliminate
these “black holes” of
21) Large Quote Approval. Here again, management must be margin.
actively involved in the business of pricing. On all quotes over
a specific dollar amount, a higher-level manager should 28) Shrinkage. Shrinkage will
become involved. kill your margins faster than
any other activity. You lose
22) Service Fees. Every business provides services to its 100% of the value of the
customers. Whenever possible, you should consider charging product for $0 revenue.
for your services, even if these fees are waived for profitable Thus it is a one for one hit
customers. It helps them to quantify the services you offer! not only to your margins,
but to your profits as well.
23) Don’t Assume! Go Out To the Field and See For Yourself! You
cannot assume pricing directions and strategies are being 29) Damaged Goods. Here
properly implemented in the field. Very often the word doesn’t again, this is an area of
filter down or it falls on deaf ears. Go find out for yourself abuse due to sloppy work
what is happening by riding with sales professionals and habits. You should
calling on customers. discipline your team to
check all merchandise when
24) Exception Reporting. Review gross profit margin exceptions it is received. Very often, it
(i.e. below selected GPM % amounts) by customers or market is easier to ignore the
segments and sales professionals or sales location. Catch the paperwork of freight claims
problems early and focus on problem areas. and thus lose margin
dollars.
25) Margin and Pricing Focus. Focus, controls, procedures,
follow-up, assigning responsibilities, pricing meetings and
formulating pricing strategies are all part of a successful 50 Ways to
program to increase margins. Increase
GPM 17-29
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TO P I C S U M M A RY F RO M S TO R M M A N AG E M E N T

30) Reducing the Volume or 33) Give-aways. Some sales 38) Terms of Sale/Payment
Quality but Maintaining the professionals use give- Discounts. Deviation from
Price. This is another aways of consumables, terms of sale, such as
pricing strategy that has accessories and/or services prompt payment discounts,
been effectively utilized. to sell their product. You without the approval of the
For example, over the years should put in policies to credit department is another
you have noticed the price control such activities. way to lose GPM dollars.
of a chocolate bar has Allowing sales professionals
remained relatively flat. 34) Monthly Specials. Field to deviate from terms of sale
What most of us haven’t personnel are notorious for is a dangerous precedent
paid a lot of attention to is establishing local and can easily get out of
the fact that the bar has “specials”. Unfortunately control.
shrunk in size by more that they are not sophisticated at
half. Thus, the cost per pricing and often give away 39) Starter Kits. One way to
pound has risen too much! increase sales and margins
dramatically. on sales is to create “starter
35) Feedback. One of the key kits”. The concept here is
31) Special Deals. Most sales elements to measuring that when a product is sold,
personnel have a few key progress is to provide you include all the parts,
customers that use “under feedback. Measuring accessories and services to
the radar” or “off the progress and informing install it, plus a supply of
charts” pricing. Very often your team of how they are consumable items. These
these are the highest volume doing on a timely basis is a kits increase the sales and
users. Unfortunately when critical part to heightened margin dollars on the initial
we implement a price awareness of a margin sale. Typically, these are
change the sales program. sold at an attractive price
professional often does not when sold together so as to
pass these prices along to 36) Push Success Stories. give the buyer incentive to
these customers. Thus a Achievement awards and buy the “kit”!
major portion of your publishing individual
revenues may not be success stories on how 40) Special Orders.
impacted by price increases. margins were increased Sophisticated sellers realize
Here again, looking at the helps reinforce increasing a price premium for special
details of your business margins. Be sure you place orders. This is a service
every day is the only way the proper importance on that is performed where
you can identify these increasing margins by price becomes secondary to
situations. reinforcing this day in and obtaining the product for
day out. the customer. Likewise, if
32) Product Returns. How often the customer does not
have product returns sat in 37) Extended Warranty Terms. accept a special order, they
warehouses for months Here is one abuse that can should be charged a special
before someone does the jump up and bite you down order cancellation and re-
paperwork to get credit the road. Can your field stocking fee. In those cases
from vendors? This is tying sales professionals offer where you are in doubt as to
up capital and, in the worst extended warranties, which the customer accepting the
cases, losing an opportunity will show up years from now merchandise, you should
to return a product for that you don’t know about? obtain a deposit or payment
credit due to expiration of up front.
warranty dates.
50 Ways to
Increase
GPM 30-40
© 2000 ALL RIGHTS RESERVED STORM Consulting, LLC
TO P I C S U M M A RY F RO M S TO R M M A N AG E M E N T

41) Price Leadership. Most industry leaders are also price leaders. 49) Multiple Distribution
They receive a premium for their products and services. Channels/Markets. Use
every opportunity to
42) Anticipating Cost Increases. In an environment where raw maximize margin by pricing
material or market conditions are driving prices upward, you separately each channel and
should stay ahead of the price increase curve. Be sure to pre market differently.
notify your sales professionals of the reasons why prices are Likewise, recognize the
increasing so they can explain it to their customers. This helps different costs of selling and
the customers understand your rationale for raising prices and supporting different
deflects their displeasure to the source of the problem. channels and markets
(especially internationally)
43) Pricing Information is Confidential. Your strategies, tactics via your pricing and terms.
and pricing activities are trade secret information. You do not
want your competitors, or even your suppliers for that matter, 50) Raise Prices. You almost
to have access to this highly confidential information. Be never lose margin dollars
careful of how you offer pricing information over the Internet. by raising prices
intelligently. The old sales
44) Audits. Simply issuing a margin related policy or developing a adage “Let’s drop the price
strategy is not enough. You must continually follow up and 10% and raise volume
conduct spot audits to make sure that policies, practices and 20%” is a loser for most
programs are being properly executed in the field. businesses. At a
contribution margin of 60%
45) Government/Large Contract Bids. There are many strategies you would just breakeven
for obtaining government/large contract bids at the highest and likely lose money on the
possible margins. First, you must be aware that there is a bid bottom line. With a
in process. Then you should position yourself to offer a contribution margin of 50%
qualified response to the bid. An effective sales effort means or less, you could afford to
getting in on the bid process to influence the bid requirements lose 20% of your volume if
to knock out competition and position yourself to win – before you simply raised prices
the bid is issued. This is the proactive approach to selling 13%!
where you can minimize margin dollars.

46) Accelerate Commissions on Higher Margin Dollars. In most


large sales forces, 70% of the margin dollars are generated by
30% of the sales force. Consider paying an accelerated
incentive for margin dollars generated over certain thresholds.

47) Product/Project Costs File. In many organizations, product or


project costs are not well defined. Much of costs are
“allocated” and may not represent true costs. Spend time to
assure your cost infrastructure is accurate and current.

48) Identify Price Sensitivity Levels. Few customers are aware of


more than a limited number of prices (although this is
changing with the advent of the Internet and exchanges).
Know what these items are and price them according to your
strategy – raise prices on other items that fall below the radar
screen. 50 Ways to
Increase
GPM 41-50

© 2000 ALL RIGHTS RESERVED STORM Consulting, LLC