How to Run a Business with Thin Profit Margins

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Most business owners want to make huge profits. Those lucky enough to control the market get those huge returns. Unfortunately, the majority have to survive with thin margins due to stiff competition. An example of a business with thin profit margins is car dealerships. Due to the high cost of inventory, car dealerships don’t make a lot of money unless they’re selling vintage vehicles.

How to Protect Thin Profit Margins

Buying Used

For companies that need vehicles for their operations, it makes more sense for them to invest in second-hand cars because they are cheaper than new ones. For example, if you have a trucking business and choose between a used Peterbilt 579 for sale versus a new truck, go for the used option. As a result, you’ll have more cash to run your business.

Alternatively, if you have a fleet of trucks parked at company headquarters due to slow business, you can hire them out to other firms and earn extra cash.

Customer Service

If you’re making thin margins, you cannot afford to lose a customer. A lost customer means less revenue, which translates to slimmer margins. Therefore, train your employees to take care of customers. They should be helpful and respond quickly to customer inquiries. They shouldn’t be rude because a bad attitude can chase away customers. Encourage your employees to go above and beyond to satisfy the customer.

Use email marketing to inform your clients about the latest discounts and deals. Don’t make them forget you because if they do, your competitors will snatch them.

Don’t Overstock

You have to monitor your inventory carefully. You shouldn’t spend money on more stock than you can sell. When you can’t recover what you spent on merchandise within the expected duration, your cash flow suffers. You won’t have enough to keep things running. As a result, you may end up taking more debt, which eats into your thin profits. If the condition persists, you may have to close down the business. Therefore, never buy more stock than you need.

Encourage Employees to Get Customers to Spend More

Suppose your profits are low. Quick sales matter because they protect your cash flow. Take the example of a furniture business. Making quality furniture is expensive. Unfortunately, you cannot sell the furniture for more than the customer is willing to pay. The best way for you to boost cash flow and sales is to upsell the furniture. For example, you can entice the customer to spend more by including a discounted console with every sofa purchase. Let the customer know how much they’re saving if they purchase the items together.

Avoid Unnecessary Expenses

You can’t escape from some expenses, like rent and utility bills, because they are crucial to business operations. To protect your profit margins, focus on those expenses that your business can do without.

The business cycle is unpredictable. There are times when the demand is high, and you have to hire more staff to handle the customers. There are also times when profits shrink beyond normal. During periods when the business is down, ask your employees to go on mandatory unpaid leave so that you can lower labor costs.

Another way to lower expenses is to minimize the number of trips top executives make every year.

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