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Increase Profit Margins: Tips for Small Business Owners

thrive-profitabilityEvery business wants to make a profit, and in order to withstand the test of time, a healthy profit is a necessity. But what’s the best way to increase your profit margins and boost your company’s bottom line? Is the secret cutting back on expenses or raising prices? Maybe cutting back on inventory or renegotiate supplier fees would help? Or perhaps your small business needs to amp-up its marketing plan.

increase-profit-marginWhether it’s finding the right balance between capacity and profits, implementing an innovative pricing strategy, or expanding your target markets, here at Thrive we are sure you’ll find at least one tactic among the tips below that you can implement when your company’s bottom line needs a boost. Here are some tips to increase profit margins for your small business:

  • Always focus on profitability. Pricing should never be “off the cuff.” Your small business should have a pricing structure that fully supports costs and expenses, including profits. Can you imagine a business without profitability? It is simply impossible!
  • Researching the market is essential to starting any new enterprise, but starting off by averaging what the competition charges is not a sustainable business model. A price list should be based on your business, not your competitors!
  • Take all of your expenditures (even the hidden ones, like prep and finishing) and make sure your business’ floor plan is laid out for maximum efficiency. Then, start measuring realistic production times. Take a stopwatch if you have to.
  • Crunch all the numbers, using times for typical yield based on actual production, and have a pricing structure that balances the numbers properly. One goal could be to get flat-rate pricing that covers all expenses, with the right profit built-in.
  • The main thing to keep in mind is you got into the embroidery business to make money. With a little planning and using these four tips, your shop can grow steadily and remain profitable.
  • When machines stop, so do profits. This is why there should be a variety of projects, with both low and high profit margins. Having the occasional high-volume/low-margin project intermixed with several high-profit, yet small-quantity jobs will keep your progress steady and manageable.

contact thrive todayFrom customer service to quality control, Thrive can help identify the unique approach necessary to boost your small business and your bottom line!

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How People Affect The Bottom Line

People affect bottomlineThe triple bottom line is one of the principles of sustainable business that gives weight not just to making a profit, but also to being responsible for how a business impacts people and the planet. In short, it looks at people, planet, and profit in all business considerations.

The financial component is the one most are familiar with because it has traditionally been the only part that a company has to be concerned about. The concept of natural capital has gained increased attention as we realize that many of the natural resources we take for granted are not going to be around forever.

The “people” part is really about human capital – the people who actually carry out the work of the company, as well as the people who are impacted by the company (this is the part that puts the “social responsibility” in CSR, corporate social responsibility).

Companies that put people first realize that it’s good for business. Some early research suggests that green businesses may have happier employees – employee productivity may actually increase when people feel good about the sustainability initiatives of the company that they work for.

What Does This Mean for Your Business? Remember that your business is all about people. The more that you can do this, the more that you will build goodwill and loyalty among the people who make your business possible. In turn, this will help your business to be sustainable for the long-term.
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Financial Key Performance Indicators To Gauge Your Business’ Health

KPIYou may have a gut feeling that your business is humming along smoothly — and you might be spot on. But there is no substitute for concrete numbers when it comes to measuring your business’ financial health. That’s where financial KPIs — key performance indicators — come in. KPI is a blanket term for the types of markers that businesses use to measure performance in a variety of areas, from marketing to HR to finance. Keeping close tabs on your small business’ financial performance is essential to long-term success. These financial KPIs will help you answer the question: Is my business meeting its goals?

  • Gross Profit Margin : Your gross profit margin tells you whether you are pricing your goods or services appropriately. Your gross profit margin should be large enough to cover your fixed (operating) expenses and leave you with a profit at the end of the day.
  • Net Profit : This is where the rubber hits the road. Your net profit is your bottom line — the amount of cash left over after you’ve paid all the bills. Financing is also a possibility to help smooth out seasonal fluctuations. Many companies go this route to keep things moving during the down season.
  • Net Profit Margin : Net profit margin tells you what percentage of your revenue was profit. This metric helps you  project future profits and set goals and benchmarks for profitability.
  • Aging Accounts Receivable : If your business involves sending bills to customers, an accounts receivable aging report (most likely a standard report in your accounting software) can be eye-opening. Invoice financing is also an option that can help you capitalize on outstanding invoices.

Thrive knows the importance of your business’ health.  Let Thrive monitor your KPI so you don’t have to and you won’t have to question if your business is meeting its goals.

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Using Metrics To Increase Profitability

Measure only what you monitor, and monitor what you measure. The bottom line is that if you don’t manage your business, it will manage you. If you’re aiming at nothing, you will hit it with huge accuracy! One of the main reasons so many small businesses fail, is the owners simply don’t know how or what to measure, or even when. Using metrics will help increase your business’ profitability. Gross-margin

Gross margin is an important metric to understanding profitability. Gross margin helps identify variances in production costs or inefficiencies in managing labor costs. Reviewing this metric over several intervals will identify where inefficiencies occur or where costs can be lowered and/or re-negotiated with suppliers. The gross margin is also impacted by sales price and validates when changes are necessary. profit-margin

Another important measure is net profit margin, which illustrates the portion of profit generated from each sale. This is likely the most vital data point in understanding profitability. This metric reveals efficiencies, economies of scale, as well whether or not your overhead expenses are in line with your performance. Cash flow balance

Most business owners are very aware of their current cash balance; however, they typically do not understand the dynamics of their cash flow. Part of your statement of cash flow, the cash flow from operations line, describes the cash being generated by the business operations, over a defined period of time. While a company may show a positive trend with net profit margin, a negative trend in accounts receivables or lack of management of accounts payable, can easily alter the cash flow of a company. So many times, an owner says “My income statement shows that I am making money but I don’t understand why the cash isn’t there”. Since cash flow problems are most typically the culprit of failing companies, you can see why this metric made the list of those most important to track.

How can Thrive help?

Thrive provides a way to help track your business’ profitability utilizing metrics like these so that you can focus on your team and continued successes.

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The Benefits of Cloud Software

The way companies buy software has changed dramatically over the years. Companies used to purchase software that included an array of programs, ranging from maintenance to product inventory. The downfall is that these programs are often pricey and can take years to install. In addition, software with multiple programs may be strong in certain areas but weak in other important areas.

Today’s recommendation is to get your software from the cloud. You have countless options to choose from and can order specialized software that fits your company’s specific needs. And when you subscribe from the cloud, you are not locked into using the software. If you discover the software is not working for you, just unsubscribe and try another. The best part is that your IT department does not need to be heavily involved in the process, they just need to approve it.

So, the next time you need new software, consider looking to the cloud to find the product you need at a price that fits your budget.

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< Return to How Thrive Collects a Downtime Event

How Thrive Collects a Downtime Event

Thrive Downtime Collection software tracks the heartbeat of the line. When the line stops, we start a timer. When it starts running again, we stop the timer then deliver a downtime event to the operator to assign a reason code via any internet enabled device; tablet, desktop, etc. We also track the line’s production output by counting units, feet, pounds or the appropriate unit of measurement.

Thrive can connect with multiple machines. When the line’s heartbeat stops, we check all three machines to see which went down first, then we automatically assign the reason. We still encourage operators to provide detail for the reason by assigning a second or third level reason code with an optional comment.

Our software can also accept alarm codes from your PLCs via ModbusTCP or ethernet/IP. This allows your machine’s PLC to automatically assign a reason code based on the type of alarm triggered.

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OEE Metrics

Measuring overall equipment effectiveness (OEE) has become the ideal way for determining how much of the manufacturing time is productive. By eliminating downtime, increasing production and improving product quality, measuring OEE has become crucial for companies focusing on lean manufacturing.

But just how exactly do you calculate OEE? There are three main metrics that determine OEE: availability, performance and quality.

Availability
This is the amount of time your equipment is running during a scheduled shift, taking into account all planned and unplanned stops during production time. When calculating availability, a score of 100% means production never stops, which is ideal in lean production.

To calculate OEE availability, use the simple equation:
Run Time/Planned Production Time

Performance
The amount of stops and idle time your production system has determines your performance score. A score of 100% means that production is always running at max speed. To calculate OEE performance, use the equation:
Actual Production/Ideal Production

Quality
While availability and performance measure how fast and how often your manufacturing process is working, quality measures how many usable parts are being produced. It’s ideal to have 100% of parts usable at the end of production.

To determine your quality score, use the equation:
Good Parts/Total Parts

Putting it All Together
Once you have measured availability, performance and quality, calculating your OEE score can be accomplished with the following equation:
Availability x Performance x Quality = OEE

A score of 100% means that all parts of the manufacturing process are running efficiently at all times.

But what if your score is not 100%? What if you discover that your production process is not very efficient at all?

By measuring all parts of the manufacturing process individually, calculating OEE helps you see which areas of the manufacturing process need improvement. If you are producing quality parts, but do so at a slow rate, you know that you need to improve performance. If machines are constantly running, but half your parts are not usable, you know that you need to focus on improving quality.

That is what makes OEE metrics so valuable. In addition to showing how efficient your manufacturing process is, it also shows you which areas can be improved upon.