What Can Improve Margin?

We have all heard the mantra ” do more with less” and we get it. Scaling, leverage, efficiency… put whatever term you want on it, all of these terms denote the need to increase your margin. There are all different definitions of margin, so let’s start out this discussion with a quick outline of how I am defining margin. Simply put, margin is the difference between what you put in and what you get out.

What are the options with margin? Overall, your goal is to increase the spread between input and output, so you have essentially two angles to play:

1) Decrease what you put in – focus on value
Most individuals consider this part of the equation easy. Just look at your inputs (people, money, time) and try find something similar that is cheaper, right? This is where you find outsourcing (people), discount vendors/parts (money), or process improvements (time). All of these strategies could work, however most are not as effective as people anticipate. Why? The trick with decreasing what you put into something is you must stay focused on value.

Focusing on value makes your considerations of changing input(s) much different.

  • Does your change just include cheaper products? If so, do your cheaper products still hold up and provide the quality experience you are used to getting?
  • Does your new process just make it easier to cut corners? If so, what is now being missed that will catch up with you later?
  • Do your new people just have less experience? Less experience is not always bad. However, if you find they are spending more time to figure out how to do something right vs knowing how to, then what are you really saving?

If you fail to consider what impacts value, then making the changes to decrease cost of input is only going to decrease what you get out. Thus, not increasing your spread between the two (i.e. margin).

2) Increase what you get out – focus on leverage
When looking at the output, the first thing to consider is what are you getting out of everything now? Often, we think we have done a great job by getting something complete and moving on to the next project, but we do not realize the additional potential of leverage.

To determine how to get the most out of leverage, you have to experiment. Here are a couple areas to consider when looking for leverage points:

  • New channels – Keeping everything else the same, is there  a new distribution method for your product or service?
  • New uses – Who else could use your product or service that isn’t on your original target market?
  • New packages – Could you offer your product or service in a new way to serve another group? Could you combine it with another product or service to create a completely different offer?
  • Follow Up – This is the most under utilized area of any program. Have you considered what would happen if you just followed up with customers once or twice after a product or service is completed? It has to be a genuine interest on your part, but trust me, it goes a long way to have a proactive touch point from a company.

Now that you have considered what is already available, you should also consider what you should do that is different. This is where you need to step back and look at all of your input (people, money, time) to determine what else could be done. Here are areas of focus for using leverage to think differently:

  • Completely new products or services – How you could harness all of the input for something completely different. This is tough to pull off, but building a business case is the best route to sell the concept.
  • Change your mix – How much of your revenue comes from product? How much comes from service? If you are 100% product or 100% service, there is opportunity to change that. Consider how to move the mix of product and service to still complement each other for existing customers but also drive new opportunities for market growth.
  • Find new partners – Are you completely working alone or have you enlisted the help of a partner network. Often there are companies that are experts in a niche that is a great complement to yours. If you have not considered who else is out there that plays in the same space, look around. You could put their marketing and sales resources to work for your (for the right price).

Value + Leverage = Increased Margin

By thinking about your input and output in terms of value and leverage, you should be able to change things to create more opportunities. If you are looking to make big changes, plan on a couple offsite days with a cross functional group to evaluate. If you are looking to make smaller incremental changes, then you can probably get good traction by taking an hour or two a day for a week or so.

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