Why more sales doesn't always mean more cash in the bank?

There is a common fallacy that many business owners fall prey to believing: “If I sell more, I’ll have more money in my pocket.”  

While that thought seems straightforward and logical, it is a fundamental error to make when measuring the success of a business. A better way to measure is by focusing not on sales, but on profit margins.  

Think about it. Have your sales increased steadily in the last few years, yet you find you’re still struggling to meet business costs or pay your employees? Even yourself? Your problem isn’t the amount of sales, it’s low profit margins. If your margins stay low, it doesn’t matter how many sales you make.  

It’s important to fix your profit margins before you sell more, but where do you begin? Start by looking at your business costs and sort them into one of three categories: Costs that can be optimized, automated/streamlined, and outsourced.  

1.      Costs that can be optimized

Example: If you run a packaging company and find you often purchase your packing materials last minute, work on forecasting your consumption so that you can place advanced orders with direct manufacturers, like Alibaba.

2.      Costs that can be automated or streamlined

Example: Do you spend too much time training new employees or addressing repeated mistakes in your business? Consider creating training manuals that include standard operating procedures for every employee. This will slim down the time spent training while also protecting you against discrepancies due to inconsistent teaching. You could say this puts everyone on the same page - pun intended!

Another example is implementing software to help with administration, reports, and filing. Automation Anywhere allows staff to automate the reporting process, giving them more time to focus on other areas of the business.

3.      Costs that can be outsourced

Example: If you run an e-commerce company, you probably have in-house product listing departments that cost you time and money. Instead, consider outsourced listing services. Although these services can be challenging to initially set up (i.e. - choosing the right partners, negotiating working methods, organizing controls, etc), the services deliver the same quality of service and most are available globally. In the end, this will save you tons of money.

 Once you have your costs categorized, spend some time constructing a plan to address each of your costs, and implement them within a specific time frame you create for yourself. Continuously reassess your profit margins to ensure you’re getting the most out of your sales.  Remember that creating an achievable plan and following up with it is the key. While it’s important to increase sales, managing the costs of operations is where the magic really happens.