How Small Business Owners Can Increase Margins

Jan 26, 2017 10:30 AM by Aileron

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When starting a business, making a profit was your initial goal, says Aileron Business Advisor Tony Collins in this video featured on Forbes

When that goal is met, it feels like success for an organization. But Tony argues that although profitability is important, that’s not the end goal. As a small business, you are uniquely positioned to be able to compete for above average margins, and this should be your focus.

Here are 3 ways to get to the point where your small business can command large margins.

1. Stop looking up to your competitors

“Often times business owners step back and they compare themselves to competitors,” explains Tony. This can be seen when a company offers the same services, pricing structure, messaging, or even offers the same verticals as a competitor. 

But if a small business isn’t differentiated from the competition, they are not going to be able to earn above average profit margins. That’s why it is important to know how customers perceive your company, and your value—versus your competition. It's critical to not look like competitors and also to be seen as valuable to your customers.

Erik Hatch, Principal of Seginus Inc., a company that develops and markets replacement FAA approved PMA aircraft parts, has learned the power in not matching competitors’ moves. 

Seginus has identified areas where they can specialize and better serve customers, and they have used that continual process to guide strategy. “We no longer look at what anybody else is doing in the marketplace,” says Erik, who explains that the company’s pricing structure is much different than any competitor. As a result, customers are much more receptive to doing business with Seginus.

“If we're focusing too much on the competition, then we're losing focus on ourselves,” he adds.

“We really set our own goals for the company, and then the way the company achieves the goals is through our people. Then the people perform and meet their milestones and goals.”

2. Get more focused

You don’t want your company to look like the competition, but you can look to the competition in order to segment your market more narrowly than they do. Said another way, you can look at the landscape you are competing in so that you can be more focused than your competitors.

“Specialists make more than generalists,” says Tony. “Segment your market a little more finer, and really figure out how you are going to solve [a customer’s] unique problem in a way that your larger rivals cannot.” 

“In our area, companies generally base their pricing on what the OEM charges. We tend to do it differently,” explains Erik. “We do our pricing from the bottom up, and we deal more with volume...That leaves a big difference between the competitors. [Because of this pricing structure,] we're not at risk to being just another OEM.”

Installing professional management in his company was also a turning point for Erik, helping to identify the company’s true strengths. It then gave us the discipline to stay focused.

“It isn’t a one-time thing—it’s an ongoing process,” he says, noting that even new team members are indoctrinated into the model that helps guide focused decision-making for the organization.

3. Embrace your agility

To have a company that continues to grow and maintain attractive margins, the work is never done. Part of that means simply not tolerating average results, or results that are at or below industry average.

One of the things many small businesses can fail to realize is that they are uniquely positioned to compete with much larger competitors because of their ability to be agile. Small businesses can quickly react to changing customer needs and wants as well as any shifts in marketplace pressures, for example.

Small business owners need to change this way of thinking and truly believe in it before long-term change can be realized. Once they do, becoming specialized and staying nimble will help these small businesses earn unmatched, above average margins.

Gain a Clearer Sense of Where Your Business Is

When you gain a clearer sense of where your business is, and where it may be headed, you'll be able to respond with better, quicker business decisions. Learn what your financial information really means as the Interpreting Your Financial Results workshop. You’ll bring your financial statements and have one-on-one time to use what you learn throughout the 6-hour session. 

Learn more about the Interpreting Your Financial Results Workshop

This post originally appeared on Forbes.com

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