Increasing your gross margin begins with a plan. But before you can make that plan, there’s one skill you must develop as the leader in your business – the ability to identify opportunities that can increase your gross margin and boost profitability.

We’re all in sales, and we all want to make a profit, but very few of us know how to measure it or identify these opportunities. By understanding and improving your gross margin, you can ensure a healthier bottom line and have more resources to reinvest in your business’s growth and scalability.

With a higher gross margin, you can confidently hire more team members to increase capacity, explore new premises, acquire additional equipment, and seize other avenues for expansion.

Review, Reflect and Reset

This is a simple skill that should be baked into your business owner’s time (the time spent working ON your business, not IN it) and it’s self-explanatory. You need to review and reflect on everything in your business and if you don’t like what’s happening, then reset it.

For example, every week you should have time in your calendar dedicated to uploading your key numbers. At the same time, you’ll review them, and reflect on why they are the way they are. Why is your revenue 20% less than your goal? This is your chance to reset your plan for revenue for the next week/month/quarter. 

Building a successful business that brings in profit is more to do with your attitude than how smart you are. You don’t need to be smart. You need to have your feet on the ground and build the muscle to review, reflect, and reset.

If you do this weekly, you’ll be able to review, reflect and reset in 15 minutes, rather than pouring over your thoughts for hours because you don’t know where you are and have too many uncertainties.

How to increase your gross margin?

When it comes to increasing your gross margin, there are only 4 levers you can pull. 

Each one falls under a segment of the Business Benchmark Methodology, pictured below. As you can see, when you successfully bring these three aspects of your business together, you get profit. The better you do it, the more profit you make.

1) Sell higher-margin services

Don’t shoot yourself in the foot by offering services with a low margin. That means you’re playing the game of high volume – you need more services with a low margin to make the same profit as fewer services at a higher margin.

You need to sell the ideal service to the ideal customer at the ideal margin. How do you do that? Reflect on and review your quote register every week without fail, and ask yourself these questions:

• Did we attract, quote, and sell ideal clients on the ideal job at the ideal margin?
• What happened that shouldn’t have happened?
• What didn’t happen that should have happened?

If you’re not, at least, selling higher margin products/services, you’re not going to deliver your desired profit into your bank in 30/60/90+ days. The money doesn’t appear out of thin air. It all starts with marketing and sales, and the price you quote.

2) Deliver quicker and on schedule

Do you have your processes down? Reflect on your assets and review whether their trend of working is in line with what you’ve quoted. For example, you quoted 12 hours of time, but it actually took your team 20 hours. That’s 8 hours down the drain that could have been filled with another job with a high margin to deposit into your bank account.

Always deliver on time and on budget for yourself and your customer, plus a little more for the customer. You should deliver the first time/best time, and this sits in the operational arm of gross margin.

To ensure that happens, everyone on the team needs to be clear on how they’re measured. They need to know the expectation for every hour of every day, with regular check-ins. After every job, you and the team need to ask the two questions from above: what happened that shouldn’t have happened, and what didn’t happen that needed to happen?

If you sleep on this as the leader, guess what your team is doing? They’re snoring every minute of the day! If you wake up to this and start communicating, your gross margin will go up. Stop messing around with the resources in your business. Set up processes and use them to your advantage.

3) Buy better from your suppliers/contractors

This is both the operations and finances arm of the business trifecta. Too many businesses are playing fast and loose with their finances because they’re disorganised.

Don’t leave things to the last minute. You might not think that those quick trips to Bunnings to buy materials for 47% higher than your regular supplier make a big difference, but it is! Anything extra that you have not factored into your quote eats directly into your margin.

If this is you, sort out your communication around procurement. This isn’t about you squeezing your suppliers, this is about you being organised. Put a process in place so things don’t slip through the cracks. 

4) Price increases

They predict that by 2025, we’ll be back to 3.5/4% inflation, which is the trend we are seeing globally at the economic level. We’re currently hovering around 7%, and we’re going to be at 5% this time next year.

But if you haven’t got a system that allows price increases on the back of reputation, and repeat and referral business, you might need to question if you’re selling to the right customers. You need a system that allows you to increase your prices because you’re worth it. Your ideal customer not only understands but actively wants to pay to work with quality businesses.

The right customer doesn’t want to save $50, or even $1000. They want you to deliver on time and budget, plus a little more. They expect you to deliver the first time/best time, and not be a nuisance. If you can deliver that, you’ve got those clients for life if you don’t mess it up.

Start bringing more profit into your business today with these strategies to improve your gross margin

The businesses that keep it simple and follow the plan are the ones that see gross margin growth year after year. Over time, you’ll gain more clarity around the three moving pieces that enable the profit to flow.

Before you start, identify the weak areas of your business to plug the holes where you’re losing profit by taking our 3-minute business health check online.