Manufacturing is an industry that sees massive profits if the right strategies are implemented. This is a domain where one right step can bring you up to the sky, while one tiny mistake can drag you down to zero. However, with the rising competition day after day, it is indeed a challenge for the manufacturers to gain profits as they expect.
In this article, we discover how manufacturers can increase their profit margins using the right implementations.
What is a Good Profit Margin?
First, we need to have a clear understanding of the boundaries when it comes to this topic.
No matter what industry we are talking about, a strong profit margin is what brings you business growth and sustainability without making you opt for price increases that block your clients. There can be different criteria and variations of the actual value based on the sector, firm size, and growth plan.
In the section below, we offer you a glimpse of establishing the grid for the manufacturing profit margins:
- In the business world, 10% is known as a pretty decent profit margin for many sorts of businesses. However, if you can walk above a net margin of 20% or more, it will be extremely healthy. Unfortunately, if your business remains on or below the net margin of 5%, this indicates an alarm that your business is not going to survive.
- When considering many businesses, a gross profit margin of more than 50% is quite impressive and known to be safe. Do not think that a gross margin of 90% is impossible. It is achievable in certain business formats and industries beyond doubt. If the gross margins remain below 30%, you are about to face a risky situation.
In the above, we covered many profit borders in the net and gross profit margins. However, as a manufacturer and also a business owner, you must understand that there is no exact boundary to determine the ideal profit margin. When a certain number can provide a solid foundation for one company, the same numbers would be an alarming situation for another company.
Top Ways to Increase Manufacturing Profit Margins
It is not a secret that many of you manufacturers work under the assumption that higher sales translate into higher profitability. However, if you look into the successful and failed manufacturing companies in the market, you will see that the reality can be different. Let’s find out the top strategies manufacturers can implement to boost their profits.
Enhance Cost Management
Cost is like a sharp razor in this industry. Why do we say that? There is a significant growth in your profits when you take the direction of effective cost control. This is one of the wise strategies to raise manufacturing profit margins. You can start by uncovering and cutting wasteful spending and extend the initiatives to streamlining the procurement process, etc.
Also, it is a wise move if you could negotiate better prices with suppliers, as it helps you decrease operational costs and increase profitability. If significant cost reductions are your target, then you will find that the application of lean manufacturing techniques, such as waste reduction programmes and just-in-time inventory management, is quite beneficial for you in this cost management journey.
Improve Operational Efficiency
Why choose the path of complexity when you can streamline everything? It is a proven fact that when manufacturing companies decide to simplify manufacturing procedures and remove the complexities from their production processes, it will offer the prize of considerable profit margins.
First, you must identify certain spots where you lose productivity and apply the modification measures. In return, you will gain benefits as shorter cycle times, less machine downtime, and higher overall equipment effectiveness (OEE).
This is where the best automation and robots signal the best strategy to increase productivity, lower labour costs, and improve overall operational efficiency.
Pay Attention to Pricing and Product Strategy
The competitive manufacturing environment and gaining your competitive edge in there lies various approaches, such as creating high-quality products and establishing reasonable, yet competitive prices. This means if your products are of poor quality or the prices are too high or not reasonable, you must readjust them immediately.
If you think you need a better understanding of the contemporary consumer needs and preferences and the requirements to tailor your product offers, you must start it with market research. When aligning with your new product and pricing strategies, you can use innovation, superior quality, or distinctive characteristics that make your products stand out.
Adopt Smart Pricing
Spreadsheets and data are overwhelming the majority of pricing teams and manufacturers. Businesses can adopt an automated, flexible pricing strategy with the help of intelligent pricing software. Teams may set the ideal price for each selling opportunity and stay up to date on market prices in real time with the use of sophisticated, ERP-integrated pricing solutions.
By adding intelligent procedures, pricing teams can swiftly respond to changes and modify centrally instead of wasting time on manual modifications. As a result, industrial businesses may make well-informed decisions instantly and stay ahead of supply chain issues and possible shortages.
Make Supply Chain Management More Efficient
Increasing profit margins will end up being a mere dream if you do not give a makeover to your supply chain. Every manufacturing business requires efficient supply chain management in order to position itself at the spearhead of the business.
For this, you must work directly and transparently with suppliers to secure cost-effective sourcing options. Alongside this, you will gain shortened lead times and negotiate advantageous conditions as well. It is advised to opt for advanced supply chain technologies, such as inventory management software and demand forecasting tools, as they can guarantee you have ideal inventory levels in hand. This will aid in reducing stockouts and preventing excessive inventory holding expenditure.
Contribute to the Learning and Training of Workers
When in the conversations of profits, many manufacturers forget their staff. A motivated and well-trained team is certainly the road to making a big difference in increasing profit margins. This is where you are supposed to invest in staff development and training initiatives to make them future-proof.
On one hand, this framework will help in advancing technical proficiency, boosting workflow effectiveness, and promoting a continuous improvement mindset. Another mindful approach is to offer opportunities for your staff members to come forward and propose process enhancements. When they are enthusiastic about sharpening their skills, you can find cost-cutting opportunities through them, and the latter will pave the way for your business’s profitability.
Adopt a Data-Driven Approach to Decision-Making
Many manufacturers have been gaining momentum by employing big data for their decision-making process. You can integrate advanced technologies for your operations and deploy some business intelligence and data analytics tools to have a closer look at the manufacturing processes.
Using new-age tools, you are able to track production costs, keep an eye on key performance indicators (KPIs) all while spotting bottlenecks. Plus, you can use data-driven analysis to influence your decisions and take them to the right path.
Cerexio Solution for Heightened Manufacturing Profits
Cerexio offer a robust Manufacturing Execution System for the manufacturing industry to cover every aspect of your business under one dashboard. Our unified system is the best approach to screen all your operations, find inefficiencies, to gain profits smoothly. Since it comes with a financial modelling feature, your cost management worries will fade away under this technological roof. Cerexio is your ideal destination for the journey towards lessening errors and heightened profits.
Clearing Up the Path towards More Profits via Lesser Inefficiencies
If you can identify the sports where your operational framework has errors and inefficiencies, it is not that hard to correct them and maximise profits in a short time. However, the question is, are you implementing the right strategy or the wrong ones, which makes your costs double? It is time to be mindful.
FAQ about Manufacturing Profit Margins
Usually in the industry, a gross profit margin of between 50–70% is considered to be good, and anything above that is excellent. However, the gross margin factors can be varied depending on the industry.
When the sales – the cost of goods sold (COGS), you will be able to calculate the profit margin, while the product’s selling price- its cost price indicates the markup. This is the main difference between the two elements.
It is practically impossible to have a margin above 100%, but markups can reach any number, such as 200%, 500%, or even 10,000%. However, this depends on the price and the total cost of the offer.
