Pension contributions increased from a minimum of 2% of qualifying earnings to 5% in April of this year, and they’ll increase again in April 2019 to a minimum of 8%.
So, what exactly does this mean for your business and its margins?
Well, the truth is, you simply don’t have any choice in the matter. You’re legally required to pay these pension contributions. All eligible employees must be enrolled, and you must make the minimum statutory payments on their behalf.
But you don’t have to let this fact eat away at your profit margins. You can do something about it. And it boils down to two options:
1. Raise your prices
2. Look for savings elsewhere
In this brief blog post, we’re going to explain a few ways to improve your profit margin against the backdrop of increasing staff pension contributions.
How to improve profit margins: 4 simple tips
1. Review your customers – all of them
It’s all too easy to fall into a pattern with existing clients. You know what they want, they know what you charge, and things just keep trundling along. But ask yourself: Could you be making more?
Perhaps it’s time to review your customers and the prices you’re charging, and work out if it still makes sense. For instance, have you raised prices to match any supplier price increases over the years? Are you providing more value but charging the same? Are your products or services now of a higher quality? Are your clients even sensitive to the odd price increase? Or will it send them running for the hills? And if it does, were they even the right fit for you to begin with?
Clearly, there’s a lot to consider, but this is an important first step towards increasing your profit margins, closely followed by…
2. Increase your prices
After conducting your customer review, you might find that one or two have been coasting along on a legacy pricing model – one that your business has done well to outgrow. And with ever-increasing and often unavoidable overheads, it’s vitally important that you monitor and review your pricing structure at regular intervals.
Understandably, business owners can be hesitant when it comes to increasing prices. They worry that doing so will result in loyal customers flinching and leaving in pursuit of a better deal. But the truth is, if you’re providing a fantastic service or a top quality product, most customers will accept a small bump in price over time. And chances are, those who don’t weren’t going to be long-term customers anyway.
If you’re still worried about increasing your prices, think about it like this: Operating at a 30% gross margin and putting prices up by 15% means you can afford to lose up to 33% (one-third) of your customers and still maintain the same level of income as before.
3. Prevent theft, fraud, and waste
The choice shouldn’t simply be increase price OR look for savings. Do both. And one of the best ways of protecting your profit margin is to prevent theft, fraud, and waste from occuring in your company.
Whether you have products or cash being stolen by staff or customers, or you have inventory, resource, or time being wasted in your business, it all adds up.
Consider implementing anti-theft systems, fraud protection protocols, and workflow management software to grab back what was once being lost to inefficient or malicious actions.
Even a minimal change in approach could pay dividends further down the line.
4. Negotiate a better deal
Finally, just as you’ve taken the time to review your customers, be sure to do the same with your suppliers.
Are you really getting the best deal possible? Are you being overcharged? Could you switch and save? A quick internal audit of your supply chain could lead to big savings.
And don’t be afraid to expand your focus to every aspect of your business: Broadband, telephone, banking, stationery, the list is endless. It might seem like penny pinching, but every penny counts!
And don’t forget the intangible benefits!
Yes, the pension contributions are unavoidable, but they don’t have to be bad news. It’s a real positive that you’re putting money aside for your employees and their futures, and if you communicate this properly, it could lead to a boost in morale and a redoubling of efforts.
Happy employees are more often than not invested in doing a good job, and increased productivity and enhanced levels of quality will only ever work wonders for your profit margin!
Increase your profit margin with Saint
Need some advice when it comes to reviewing prices, introducing efficient workflows, or decreasing tax liabilities? We can help. Simply fill out our contact form, or call us on 01228 534371 to get started.