- To find out the causes of that have declined profit margin of the organization.
- To examine the strategies and tactics that will improve the performance of the company.
- To be able to describe the impact of those strategies of the company.
Ultimate Solutions is an organization which deals with selling various IT products to different customers around the country. The company's profit margin has been substantially reduced recently as because it was spending a lot of money on products that are not its core competency. Therefore the company has aimed to come up with the strategies and tactics to overcome this problem. A core competence is something that a company does well relative to other internal activities .It is central to a company's competitiveness and profitability rather than peripheral .Our company's core competence can relate to any of several aspects of business like expertise in building networks and systems that enable commerce, speeding new or next generation products to market, good after -sale service and others.
Ultimate Solutions is an organization which deals with various IT products to different customers. Despite the fact that it has experienced financial crisis for the past years, the loss was discovered when the organization realized that it has spend a lot of money on products that are not important really made important to its loyal customers. This had made a huge impact in the company as the profit has decreased. The organization has decided to come up with some strategies that will help in the recovery of the profit margin
STRATEGIES THAT INCREASE PROFIT MARGIN
Strategy is defined as the general approach an organization will follow to achieve its goals. A strategy might describe how an organization can best position its particular goods and services to fulfill customers needs, (Donald R. Cooper 2000).
If you are a smaller business owner, identify things that will corrupt the strength of the on going business. Make so many decisions as possible time and again that will beef up the company's financial future. Choices you make, it could be setting prices or identifying the suppliers you should highlight them from the beginning. If your profit margin is inescapably low it may affect your business process, but don't forget there are many factors on the way, like managing time and payroll that should be controlled to make it higher. Anyway make sure that every sun raise you learn to make better decisions by maximizing your company's net profit margin.
Experiment Every Day;
Developing new strategies could boost one's business new levels of efficiency, it is human's origin to play with something which real works and propel productivity. Consider what the business is doing recently if it is operating a year from right now, said Judson. He found out that people who succeed are the one who identified a way of testing things at a low price.
However, Judson adds more by saying attention is supreme because experimentation is the main brain behind component for success. "You should never wager the ranch," he suggested. The decision making is done by successful entrepreneurs only after thoughtful consideration of how they overcome the risk. The down side is always the target, he said. Make sure that every direct and indirect cost related to trying something pioneer, like introducing a new product which may cause confusion to the customers or opening you're your store during the weekends which may result increase in expenses due to overtime costs for employees are taken in an account.
A step back should be taken monthly considering whether the employees are putting much effort on the project that gives the business a shape or add value to the business. Identify the tasks that could be automated within the organization in order to free up time for more profitable jobs. Bruce Judson, who is a senior faculty at the Yale School of Management in New Haven said, "Every month recall everything and ask,' what are the things that we are doing by hand as a company that we can subcontract?'"
Judson continued by saying, business functions such as payroll can be subcontracted through Application Service Providers (ASPs), which are a cost-effective and efficient. These ASPs are time and again providing low-cost software which is monthly rented and is held off-site. They allow businesses to accomplish tasks such as billing without requiring them to purchase expensive software or train employees to use it, hence cutting the costs.
Avoid Common Mistakes
Identify ways of avoiding common mistakes in your company. According to Peter Sealey it is clear that nowadays admitted dated remains relevant for small business owners. On top of that Drucker also suggested the following tips that can help any business grow its profit margin;
Focus on profit margin.
According to Sealey, most of the companies don't know the difference between high profit and high profit margin, they have mistaken the two. The volumes of the product you sell have to be taken into description and it's always better, Sealey continue thinking that persistent in your pricing margin makes the product or service eye catching. So enhancement of margin can be done or made later but if the management of the margin was poor at first, product, business and service had failed at the start.
Keep your eye on the future.
Do not use all of your resources and best people on projects that serve the present market. Some of your brilliant ideas and financial investments need to focus on future products and services.
WAYS OF REDUCING EXPENSES IN OUR COMPANY
It is crucial for Ultimate Solution to consider an 80/20 analysis of the business as it is a great tool when you are spending time and money on non-core things .It should find products and customers that are providing 80% of your revenues and profit then review their efforts on these areas. Thereafter, should disregard 20% of customers and products that do not contribute.
Our company can improve the profit margin by looking at the expenses per client. This can be done by reducing the unnecessary products that the customers do not consider valuable. It must also consider the expenses of the business meaning what expenses can be reduced and what does the business really needs in contrary with wants
Listen to the market.
Here you should allow the ultimate price of service or product to regulate its costs, not verse versa. Most of the companies aim high and does not respect the margin since they come up with higher margins which are not cross ponding with the exact selling price. "We should use price-driven costing," Sealey suggested. He carried on saying that determination of to whom we are selling the product or service to should be taken under consideration hence enabling the company to create and a profit and manufacturing and cost structure that will allow us to do it. However, the chances of adding unnecessary extras to your product can be decreased by instituting a superlative price first and then creating a cost structure depending on price.
Feed opportunity-don't starve it.
The company should never spend much of its time and resources dealing with fix problems that will cost it instead of going forward. This will increase its expenses and it will go on raising some other problems which are uncontrollable like ending up having clients which are affected by the problem of the company. In addition these are the very similar clients which used by the company to solve the business problem, Said Sealey. Sealey noted that problems never bring cash and income and margin. They are of yesterday's activities and opportunity is where our eyes are.
Offer fair prices-all the time.
As a company you should be aware of your prices, it is not something to play with like randomizing them, make sure that the prices suit your customers because a temporary situation forces demand. Due to this situation you may have shortage for this market service in the market place hence having an opportunity short-term to upgrade the price, and this is a mistake. Sealey said that it is always necessary to price for the long term. Therefore make a fair and good margin that will drive you toward your aims, depending on the price you give. This will much easier to be recognized by many people and they will reward you for it.
The research has concluded that in order for the organization to sustain this profit margin, it should come up strategies to enhance their way of doing business. These will all base on profit margin, customer's needs and quality products. Moreover there are many strategies that can be used by organization to maintain their business and meet their objectives. These strategies include focus on profit margin which is the main idea behind solving the recent problem. Keep your eye on the future and the others mentioned in the body. Therefore these can benefit the company in terms of increasing profit margin, as they brought a clear a in the body.
- For the entire latest information one can visit the following
- Bruce J. (2002) Go it Alone journal article. The Secret to Build a Successful Business on Your Own. Also available from http://www.business-management/profit-margin.html(02 March 2010)
- Ketaki Borken (2009), effective marketing strategies [online], co sta mesu, available from http://www.buzzle.com/marketing strategies(28/ferbruary/2010)
- Peter F.D. (1993) wall street journal article. The five deadly business sins.
- Book: Thompson. S (2003) Strategies management, Third Edition, McGraw Hill Companies Inc.
- Also available from http://www.business-process-management-software.html(26 February 2010)