3 Tips To Improve Your Interior Design Business Profit Margin
If I run into you on the street, I’d probably ask, “How are you doing?” You’d have an answer, right? But what if I stopped you in the street and asked, “How’s your business doing?” Is the answer as ready?
It’s time to figure out the state of your business and how it’s doing. Do you have a good profit margin?
Getting A “Good” Profit Margin
First and foremost, the term “good” is relative. It may depend on the type of business you run. For a product-based business, a healthy gross profit margin is 40-60%. For a business that is more service based, 75-80% may be healthy.
Therefore, the goal is a good gross profit margin (may also be termed operating profit margin since it is the amount used to operate the business), one that is high enough to keep the business sustainable. The lower the gross profit amount and thereby percentage, the more income is needed to run the business.
A Healthy Profit Margin Helps Your Business Run Better
In order to really know how you’re doing, you must establish the gross profit amount, the money used to run the business. This number shows you the health and sustainability of your company.
For example, recall that gross profit is revenue leftover after removing the cost of goods. If the Gross Profit is $100,000 versus $50,000, you can see that your ability to run your company could be very different. This gross profit is used to pay the operating expenses of the business. The higher the amount you have available to pay your company bills (including salary and payroll) the better you are.
How To Get A High Profit Margin Business
The following are three tips to improve your business and increase your profit margin:
Do The Math. On a regular and consistent basis, track your gross profit margin and follow industry scales. You have your interior design financial statements that provide the numbers so you can easily input these into the profit margin formula and calculate your operating profit margin. (If you don’t have interior design financial statement, learn how to create these so you can get started.)
Focus On The Goal. Once you recognize that your goal is a high profit margin business, you can take the proper steps to get you there. Business decisions now have a concrete focus rather than an emotional or instinctive guide. The gross profit in your business makes the business sustainable. Create a clear financial goal.
Analyze The Data. When reviewing any of your margins (gross, net, and others) use the data to make decisions. If you are offering products or services that do not bring in a gross profit amount that works for you consider not offering that product or service, delivering it in another way, pricing it differently. Let the financial data be your guide to creating healthier profit margins which will remove stress in your day to day activities.
Facing Your Fears
There’s a saying, “to feel the fear and do it anyways,” which is the definition of bravery. You can be brave. Face your numbers with me and let’s find out if your operating profit margin is “good” for your business. Join The Designers’ Inner Circle where we work with you to determine your numbers and if they are sufficient to run your company.
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