ERP Increases Profit Margins

Published May 18, 2016

The Difference Between Increasing Revenue and Making a Profit

Most executives find it relatively easy to justify spending big money to purchase a new piece of equipment in the hope to increase turnover by 2%, and profit margin by 1%. What often gets overlooked however, is that investing the cost of this new machine in a new business software could generate a significantly higher increase in profit margins.

We have worked with hundreds of businesses across different industries. During this time, we have been able to benchmark many organisations when it comes to turnover, profit margins, overheads and direct administration costs.

Businessman counting his change while looking at graphs to determine revenue vs proft

It is more common than you may think for us to visit a company that has grown significantly over the last 10 years, but the executive team and board are shaking their heads, wondering why the company is making less profit now than when they were smaller. If you are nodding your head now while reading this, it is because if you haven’t worked in a business where this is the case, you certainly know a business like this.

The Case for Improved Business Systems Over New Equipment

We have seen first-hand management get excited after viewing a demonstration of a revolutionary new piece of machinery, such as a new laser cutter, instantly starting to generate a ’business case’ for the purchase and expand their operation into the vacant building next door; hoping to generate some extra revenue in a market that they do not yet operate in.

Machinery sales representatives typically have an easy job convincing customers to purchase a shiny new piece of equipment. Sometimes this is even well before the company has the necessary infrastructure in place to support it.

More often than not, in our experience two years after the purchase of the new piece of kit, one of two things typically happen:

  • The new machinery has indeed contributed a 22.5 % increase of revenue, but the company has now employed three additional admin staff members to send out all the estimates, process all the orders, create the invoices and run the now much busier dispatch department.
  • The sales team did not have the skills or desire to sell a modified product to a new market, and the sales for the machine never really contribute the additional revenue that was planned.

At the time of the machinery purchase (or any other plan for expansion or growth) if the company had looked closely at the business systems they have in place, they may have found that by increasing the efficiency of their existing admin team and floor staff to process their existing orders and workflow, they could have easily coped with the additional workload generated by the expansion or growth.

A simple analysis of a customer’s existing overheads and a concentrated effort into reducing the cost of administration staff and processes can often result in a significantly higher increase in profit margin compared to those possible from a new piece of equipment.

It’s a fact that a lean and efficient business will make far greater profits than one that is admin heavy, but how do you get LEAN and cut your admin staff or, even better, leave your existing admin overhead where it is and grow your business by 200%?

The Benefits of ERP

By working with a reputable business software provider who can combine all your independent systems such as CRM, accounts, payroll, inventory, warehousing, projects and manufacturing into a single platform, significantly reducing the amount of paper and admin-heavy processes to run a business. If you are not familiar with the term ERP, a truly integrated business system is often referred to as an ERP (Enterprise Resource Planning) system.

Have a look around. How many staff are in your admin area? Look at the piles of paper, the years of records, the scans, the invoices, the manual processes (yes every company has them) and ask yourself ‘What would my profit margins have looked like if we expanded our business 200% over the coming years, but the admin cost did not expand at the same rate?’ 

If you are serious about increasing your profit margins and running your business more efficiently, then take advantage of our Break Through the Bottleneck with one of our industry experts.

Our ERP specialists can come and visit your organisation, chat to you over video-conference or over the phone from the comfort of your desk. Contact us today, to get the conversation started.