Protecting Your Margins Must be a Priority
Protecting your margins should be one of the business’ highest priorities. Diligent cost controls combined with smart moves to gain market share are mandatory management activities. Lower margins leave less room for error. Here are some things that can be done to shore up the margins and cash flow.
Product Differentiation. Make your product different to the point that (price) comparison-shopping is difficult.
Pricing. Consider your product mix; i.e., how many you sell of each product. If competitive pricing forces you to trim margins, try getting it back on after-market sales or sales of other products.
Discounting. Try multi-tier discounting; i.e., large discounts on certain groups of products (those with the most competition or visibility) and lower discounts on others.
Average order size. Show your customers how to save money by spending more money; e.g., three for the price of two. This, of course, dilutes the margin percentage but does increase the actual amount of the sale and gross margin contribution.
Shipping and Handling. Charge extra for special services. Shop and negotiate with your carriers.
Credit sales. Make it absolutely clear that when credit terms are offered, shipments will be terminated immediately if the bill is not paid on time.
Special pricing and terms. Give your sales people limits and ways to compensate for a reduced price. For example, if they must discount beyond normal, then offer reduced warranty services or get cash in advance or eliminate certain items that would normally be included. Whenever you give, get something in return.