According to the Harvard Business Review, 17% of businesses did not make it through the last recession. However, the rest did. It can be easy to panic and think about the businesses not surviving, but where your focus goes your reality will follow.
If all you focus on is failure your brain will continue to prove to you how failure is happening for small businesses all around you.
However, if you focus on the fact it is possible to survive a recession then your brain will continue to find ways to prove to you how it is possible for small businesses to survive.
This week I am focusing on showing you one prevention-focused technique that may help you weather the storm of a recession. I cannot guarantee anything but diving deep into your expenses and raising your profit margin is a good prevention technique to help your business survive.
Making sales is the first step. Getting money from those sales into your pocket as profit is the next step.
Raise Profit Margin by Lowering Expenses
One way to raise profit margin is by lowering your expenses. Ask yourself these questions.
- Are all my expenses necessary?
- Are all my expenses utilized and used by the business on a regular basis?
If the answer to these questions is yes, then the business expense is most likely benefiting your business. And it would not be beneficial to eliminate it.
However, if the answer to one or both of these questions is no, then the business expense is most likely no longer providing benefit to your small business. It would be good to consider whether or not eliminating the expense is possible. And if possible, does it make sense to eliminate the expense?
This is not all about eliminating expenses - sometimes an expense makes it possible to spend more time on other income producing activities and as a result is a huge benefit. Which is why it is important to consider how often the expense is being utilized.
For example, I love using Tailwind and pay an annual fee to use it. And while it’s not necessary because I could run my business without Tailwind, it is something that saves me so much time which then allows me to spend my time on other activities. For me, the cost of Tailwind is a good investment for my business.
Raise Profit Margin by Increasing Sales
A second way to raise profit margin is to increase sales.
For many small business owners in the online service based category, your expenses do not change very much when you increase your sales. Or if expenses increase, it’s at a slower rate compared to the sales rate.
In other words, you can sell more and your expenses remain about the same. And when you do that your profit margin increases!
Raise Profit Margin By Increasing Price
A third way to raise profit margin is to increase your prices. I did not talk about this topic in the video, mainly because when looking at a down economy, recession, or season of slow sales raising prices is not typically a strategy I see work well.
However, when you walk through your profit margin calculation if you find you are not priced appropriately and need to raise your price. Then by all means raise your price! And that will raise your profit margin as well.
Why All The Fuss Around Profit Margin
Your profit margin determines how well you can get paid. Sales are necessary, but if you aren’t making profit they won’t do you any good. You need sales and a good profit margin in order to run a successful small business.
If you sell $40k and have a 10% profit margin - that’s only $4,000 in profit.
If you sell the same $40k and have a 25% profit margin - that’s $10,000 in profit.
Raising profit margin isn’t always easy and in some cases it’s not possible, but it’s good to look at it just to be sure you are optimizing your profit margin as best you can and giving your business the best possible chance of surviving a recession, slow season, or down economy.
If you would like a step by step walkthrough of how to calculate profit margin on a deeper level, you can grab your copy of the Profit Plan Blueprint below!
What Does This Mean For You?
While 17% of businesses did not make it through the last recession, the rest did. Focus on that.
Allow your brain to see obstacles as opportunities to success. Getting through a recession is not always easy, but it is possible. Do what you can to be smart about how you’re running your business. That does not mean you will cut all the costs out, but it does mean you will look at your expenses and eliminate those that are unnecessary.
You got this!! I’m rooting for you!!
If you found this post helpful….
I would be so grateful if you would take a moment to pass it along to a business friend right now!
