How to Increase Your Profit Margin

To have a successful business, you need to aim to have high profit margins. A profit margin is the percentage of revenues that remain after subtracting cost of good sold. Read on to learn about the top ways to increase your profit margins for your business.

Review Cost of Goods Sold

Cost of goods sold (COGS) are the direct costs that you incur to deliver a product or service to a client or customer. Having a low COGS can help you have a high profit margin. Think of it as the cost of sales. The charges that are included relating to COGS are depreciation, factory overhead, labor, materials, and storage.

All those expenses affect your profit margins. You can ask if you can lower some of these costs. For example, take to your suppliers and see if you can negotiate new rates. You can talk to your landlord and see if you can negotiate the rent on your office or factory. By re-negotiating on some terms, it will help you lower your expenses.

Labor Costs

Review your labor costs and see if you are spending more than necessary on your employees or contractors. Perhaps there are a lot of overtime hours your employees have, or your employee turnover is high which adds more costs to hiring and training new people.

Identify your labor costs and see if there is room for you to minimize or eliminate them.


There are many ways you can include automation in your business to help become more efficient and reduce costs. Some of the systems you can automate include:

  • Basic bookkeeping
  • Inventory management
  • Employee benefits
  • Background checks
  • Payroll

Increase Prices

Increasing prices can help increase your profit margins but make sure to do research beforehand. You need to determine the exact pricing that is appropriate for your business. If your prices are too high, you might drive away customers or clients. Ask yourself the following questions to see if you should increase your prices.

  • What are your competitors charging? See if they are charging the same or less for their product.
  • What do you want to charge? Will you lose customers?

Assess Your Existing Customers

Take a look at your existing customers. Do you have any customers that are difficult to deal with? See if they are worth having around and if they order enough that you need to keep them.

Improve Your Customer Service

By improving your customer service, you can increase your sales over time. Excellent customer service means repeat customers and can attract new customers as well. Take a look at how your business interacts with clients, from emails to phone calls and see how efficiently your business responds or interacts with them.

If you see that there could be some improvement, consider training your employees or modify your emails in a better way.

Reduce Waste

By reducing waste such as paper and ancillary products can help reduce shipping costs and your profit margin.

The Bottom Line

Having a high profit margin is important for any business to be successful. If you find that your profit margin is low, you can work on improving it by following the steps above to help you get to your goal. Manage resources effectively, raise prices if you need to, and see where you can cut back on expenses to help you improve your profit margin.