I worked with a particular client who was into fashion designing. She made over 2 million naira every month. But after all her expenses, all she always had left was just a profit of between 100k to 200k.And several businesses have this problem.
You make a lot of money monthly. Millions. But your profit margin is so poor it can't even give you freedom and peace.Your business is more or less on life support. What can you do to correct this?
First, let's look at what the cause could be.
There are Three things that are responsible for this:
If you don't price your products well, you may make a lot of money but still have very low profit.
Do you really know how to calculate the cost of running your business? Many people focus strictly on cost of production. So let's say for this client, her cost of producing a piece of clothing will include the threads, the fabrics, stones and every piece of material that goes into the clothing.
Many people calculate their cost only based on production and forget to check expenses.Your cost also covers operations, salaries, cost of fueling your generator, etc. You need to factor all of these into your cost analysis so you can know where your money goes.
3. Quality of customers.
If your target audience does not have the capacity to pay for what you are selling, you won't be able to price your products well enough. The reason is they will try to play the price game with you and never buy on value. You should be sure you are selling to the right market.
That said, there are two ways to remedy this situation:
1. Try to plug all holes where you are losing money. Cut costs in areas that are not necessary.
But the most important solution is to
2. Create multiple channels for making money in the same business.
As a fashion designer, you make money from designing and making fabrics that you sell to your customers. What if you create a training and mentoring arm and make it standard to attract people to constantly come learn?
What if you create a consultancy arm where people pay for your advice?
What if you create an online course that you can sell to bring in note money?
Most importantly, you may want to focus your marketing on getting customers who can pay more for the same value.This may be your biggest win. Already you are making money, but margins are low.
Working on your pricing can improve your margins and this can only be dependent on the quality of clients or customers you attract.