Key Factors Affecting Profit Margins

Profit margins are the basis of your organisation’s success. As a result, you need to understand what factors are affecting your profit margins, so you can work to increase the profitability of your business. 

What is a profit margin in sales?

In sales, a profit margin refers to the profit which remains from the sale of your product or service. There are different types of profit margin, and it is very important to understand these, as this figure will help you to understand how many sales your team needs to make to hit targets. 

It is also important to understand the factors which affect your profit margins, so you can work to increase it and maximise revenue. 

The different types of profit margin

There are three main types of profit margin, known as ‘gross profit margin,’ operating profit margin, and net profit margin. 

Gross profit margin

Gross profit margin is the percentage of revenue left after paying the cost of goods sold (COGS). Simplified, this sum is the percentage amount of money your organisation makes after accounting for the cost of whatever it is you’re selling. 

Operating profit margin

Operating profit margin is the percentage of revenue left after paying the COGS and operating expenses. Operating profit margin does not take into account the expenses of interest or tax. 

Net profit margin

Net profit margin is the percentage of revenue after paying all expenses, including interest and taxes. Net profit margin accounts for not only the cost of goods sold, but also the other operating expenses your business incurs.

(All above definitions via Investopedia)

What main factors affect profit margins?

Profit margins are largely affected by underperforming sales teams. There are always a number of factors which culminate in low profit margins, but effective sales training can rectify many of these issues. 

The fundamental issues which can lead to low profit margins include: 

• COGS - Naturally, the cost of goods sold will impact your profit margin. Methods to reduce this figure include buying in bulk, or optimising the production process to lower internal costs.

• Sales Volume - More sales means higher profit margins. While self-explanatory, many businesses struggle to increase this figure. That's where we come in - Mentor Group offers a bespoke sales training service perfectly suited for your business. Our primary goal is to equip your sales team with the skills to increase sales and improve customer satisfaction. 

• Operating Expenses - Expenses such as rent, utilities, salaries and administrative costs are all vital to running a business, but they damage your profit margin. Most of these costs are unavoidable, but engaging in energy efficient practices, and streamlining your operations to avoid time wasted are a couple of effective ways to reduce costs.

A poorly-trained sales team is undoubtedly one of the most damaging factors when it comes to profit margins. After all, the money your business makes is dependent on the number of sales you make. High operating costs and COGS are issues which can be made negligible if your sales team is thriving. 

It is important to understand that this loss of revenue will not only be because of the surface level issue of low sales, but also due to the knock on effect of an untrained sales team. Lost opportunities and damaged reputation are just two of many issues that a poorly trained sales team may bring; but sales training forms, such as coaching or mentoring, are perfect for driving revenue growth. 

Profit margins are also damaged in teams with a high turnover rate. High turnover is often down to insufficient training leading to sales teams missing their quotas. Salespeople failing to reach quotas will often have damaged or strained relationships with their management structure; sometimes because they feel they have not been provided with the training they require to meet the targets they have been set.

How you can increase your profit margin with sales training

Effective sales training will transform your sales team into one which is reliable, and consistently delivers results. Businesses that prioritise regular sales training boast a 24% higher profit margin on average; what’s not to love about that?

Sales training will enhance the customer experience, often leading to an increased average order value. On top of this, customer satisfaction will cause higher customer retention. Happy customers are returning customers, and returning customers mean higher profit margins. 

As mentioned above, a lack of sales training can increase turnover rates. On the flip side, sales training can be implemented with a mind to increase employee satisfaction. This is effective in two ways:

• High employee satisfaction decreases turnover. This creates a healthier and happier culture within your organisation, as well as reducing administrative costs associated with hiring and welcoming new employees. Thus, profit margins are increased.

• High employee satisfaction as a result of sales training will also incentivise your sales team to work harder on their sales skills. This can lead to the exponential growth of sales, increasing profit margins tenfold. 

Effective sales training culminates in more value out of each sales representative. This will leave your business with scope to either grow or downsize with little to no risk, given that you are getting maximum value out of every sales representative. 

Get in touch with Mentor Group to discuss how to increase your profit margins through sales training.

If you want to learn more about how Mentor Group can help your business adopt a revenue-centric strategy, and transform the revenue potential of your organisation in the process, visit our Contact Us Page or reach out directly to info@mentorgroup.com