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Have you ever wondered how to keep more of your hard-earned money in the bank?! Then this episode is for you! It always seems to fly out the window! So, how do we increase our profit margin and reduce unnecessary costs? Kendra is here to help! She will go over everything you need to know about how to increase your bottom line.
What you’ll hear in this episode:
- Can you discuss what a profit margin is and how we should be measuring this as entrepreneurs with a small team if any team at all?
- Can you share some of your top strategies for improving profit margins?
- What are some hidden costs you see across your clients that seem to affect their profitability without realizing it?
- Do you find that many of your clients are undervaluing or undercharging their services? How do we know if we are!?
- What are 1-2 things we can do today to make a step towards bettering our profitability this month or year?
What Does Profit Margin Mean?
Profit margin is the money left over after you pay for your expenses. It’s the money you’re walking away with. Most business owners calculate this at the beginning or end of the month for the invoices and expenses accrued during the month.
Here’s an example!
| Client Invoice #1 | + $1,000 |
| Subscription Fees | – $300 |
| Operational Fees | – $100 |
| Credit Card Fee | – $50 |
| TOTAL | = $550 |
The $550 left over after you pay your expenses is your profit margin. That’s what you’ve earned from that invoice after paying your expenses.
If you feel cash-strapped even though you see all these invoices coming in, it’s probably a profit margin issue. Your expenses are so high that you aren’t walking away with much at the end of the day.
You calculate your bottom line profit margin after you’ve paid every expense. The higher percentage profit margin you have, the more money you’re left with. This is the calculator you use to find that percentage:
Profit = ( (revenue – cost) / revenue ) x 100
We aren’t big math girlies, but this simple calculation has helped us understand how profitable our business really is.
Strategies for Improving Profit Margins
So now that we know what profit margin is and why it’s important, let’s go over some ways to increase your bottom line and profit margin. Keep that money, friend!
1. Limit Day-to-Day Spending
An example of this is ad spend. You’re paying per day for ads that bring traffic to your website. Make sure you’re tracking it! See what you’re getting in return for the ad spend and decide if it’s worth it. If you’re spending $10/day and not getting any leads, maybe it’s time to turn your attention and dollars elsewhere.
2. Cancel Unused Subscriptions
We’re guilty of this in our personal and business-owner lives! We sign up for a service and forget we’re paying for it. Or we miss the annual renewal deadline and pay for something we stopped using. It happens to the best of us! Be aware of the subscriptions you sign up for and when they’re invoicing you for payments. Then cancel any you don’t use or see if you can consolidate any tools so you’re only paying for one!
On a larger scale, Kendra often sees people buy programs but never do the work. So you’re usually throwing a lot of money at something to learn a skill but don’t actually do the work. If you’re going to do the work, it’s worth the investment because you’re going to see a return. If not, it’s a waste of money.
3. Increase Your Prices
We know increasing your prices can feel uncomfortable, but it’s a necessary part of business! If your project expenses are unavoidably high, you may need to increase your prices so you’re getting paid fairly for your work.
Imagine this: Your service costs $3,000, but your operational expenses are $2,500. That means you’re only getting paid $500 for the project. If you absolutely need those operational expenses, your only option is to increase your prices.
Increasing your prices can help you increase your bottom line!
4. Understand Expense vs. Investment
An investment is something that will make your life easier. It will improve your process and save you time. We think investments are always worth it! If this investment saves us 10 hours a week, we could literally take on a whole other client. That’s so worth it! An investment can still be an expense but you’re getting something back from the investment. That doesn’t always happen with normal expenses.
Pay attention to your profit margin. We know money-talk is confusing, but we hope this episode helped clear up the importance of profit margin. Have yourself a money date (as Kendra put it 😉) and figure out your expenses and how to increase your bottom line. You don’t have to be an expert to understand the money coming in, the money going out, and what’s left over!
Meet Kendra of The Finance Femme
Kendra is the CEO of Kendra Nicole™️ & The Finance Femme®, and the creator of Scalable Firms™️ and Peace & Profits™️. After graduating from Clemson University (Corporate Finance and Accounting), Kendra quickly moved up the corporate ladder while working for corporations such as GE. This work led her to pursue her love for small business strategy by founding The Finance Femme®, an accounting and fractional CFO firm. Kendra also hosts an exclusive 6 month mentorship/coaching and retreat program called Peace & Profits™️. And her Scalable Firms™️ program where she coaches other accounting and finance professionals on brand and business building. Kendra is a wife, mom, podcast host, and Texas resident.
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