Tough industry competition can make it hard for entrepreneurs to carve out a decent profit margin for themselves. In fact, it is in the pursuit of this profit that creative minds come up with the most innovative solutions.

I share advice on operational efficiency with entrepreneurs on a regular basis in order to help them come within reach of their desired profit margin. Below, you’ll find five of my favourite tips:

1. Standardization and automation

Standardizing and automating aren’t just for big businesses, yet few entrepreneurs think of doing so. The reason? Many are unaware of their business process, causing them to miss out on this fast-track to profitability.

It’s important to understand that every task is essentially a process, making it possible to standardize or automate each one up to a point. This can be as simple as creating email templates for recurring exchanges, establishing set formulas for spreadsheets, subscribing to RSS feeds to stay on top of commercial news, or programming social media posts with the help of tools like Hootsuite.

Each initiative aims to reduce the time allotted to clerical work, or administrative or redundant tasks. With any success, standardization and automation will free up your time for business development and the work at hand – in other words, actions that directly impact the business’ growth.

2. Freelancers

Payroll represents an important cost for many businesses, which is why freelancers are often a better option than new employees – so don’t jump the gun on hiring just yet.

Where freelancers represent a variable cost, employees are a fixed expense. In other words, freelancers only need to be paid when sales are made, whereas employees receive salaries irrespective of a business’ success. Over time, freelancers will cost you less, and be less detrimental to your business’ cash flow. Given that they use resources only at the time of a sale, they will never put you under, and will always be associated to a positive cash flow.

3. Outsourcing

Do not try to excel at tasks for which you are not qualified – it’s that simple. The result is nearly always sub-par, and usually more expensive than you initially planned. It is often preferable to trust a specialist with a task or mandate in a field that is outside of your realm of expertise rather than attempting to complete the work yourself.

This may seem counter-intuitive, as the required services will have to be paid for. So look at it this way: how long will it take for you to accomplish an unfamiliar task? What kind of result are you aiming for? It’s likely to be more beneficial to pass the torch to an expert right from the get-go and immediately get started on tasks you perform well.

4. Ergonomics 101

This bit of advice is the easiest to apply. Take a step back and evaluate the ergonomics of your business process. Do you work efficiently? What steps must you undertake to do so? Are some of these steps redundant? How can you make life easier for yourself?

This tip is all about eliminating the wasted time and effort that have crept into your operations. Think back to the beginning; examine what can be reduced, removed, or improved. In the end, a simple survey of your operational efficiency can help you discover time and money you didn’t know you had.

5. Frequent calculation of cost price

Here’s a little anecdote: an entrepreneur once owned a fast-food joint where he sold hot dogs, fries, hamburgers, and an absolutely delicious poutine. Things were going smoothly until he discovered that he was no longer making any profit. He was at a loss to explain why, as his sales had remained the same.

It is then that he realized the demand for poutine – the least profitable item on his menu – had increased. The recent rise in the cost of cheese meant that he was losing money every time he sold a poutine. Ironically, customers were requesting the poutine with growing frequency because they considered it a great deal compared to the entrepreneur’s competition.

The moral of the story is this: you must regularly calculate your cost price to make sure your profit margin remains the same over time. In a case where less profitable items gain in popularity, you must be able to adjust your pricing policy in order to remain stable in terms of profitability.

Written by: Jean-Philippe L’Écuyer, Entrepreneur in Residence at Futurpreneur Canada, jplecuyer@futurpreneur.ca

 

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