How can I use IT to improve profit margins? | The QuoStar Q&A
Welcome to the QuoStar Q&A. Each month we take a question from a member of our community and put it our team to answer. This month, a managing director asks where are some of the key areas where IT can protect – or even improve – profit margins quickly.
Last updated on November 13th, 2020
“Coronavirus has had a significant impact on my business, and I need to find ways to protect our profit margins without harming the business longer-term. Our IT systems definitely helped us stay up and running during the lockdown, so I know I can’t really cut spending dramatically but is there a way I can use our systems and technology more effectively, in terms of helping revenue or margin in the short and mid-term?” – Managing Director.
A common mistake businesses make is to think about IT purely as a cost. This typically happens when businesses think of IT purely as hardware – laptops, desktops, printers, servers, phone systems – and the software that runs on it. While these are important parts, if you’re really looking to improve margin with IT then you need to move beyond a basic product-focused mindset.
Instead, you need to start thinking about IT holistically, in the context of your entire business operation. There will hardly be an area that is not affected by IT in some way, so there’s definitely an opportunity for you to utilise systems and technology to improve company profit margins.
Digital transformation has focused organisations on new opportunities and made technology that was once only affordable to larger enterprises widely accessible. Alongside traditional margin improvement strategies, such as outsourcing and external cost reduction, digital transformation has the power to improve operational efficiency and optimise costs. However, it cannot be achieved simply by purchasing all the latest digital tools and IT solutions.
How to create a margin improvement strategy
In the current economic climate, it is understandable why margin improvement is top of mind. But, before you rush to invest in new IT solutions, it is important to identify what is not working first.
Data is the key to making margin improvements. Review your departmental KPIs, expense reports, your budgets, and current sales. Talk to your employees, understand their day-to-day activities and the challenges in their role. Are you neglecting IT equipment refresh cycles? Are employees spending too much time on repetitive administrative duties? Is it difficult to access data and business information? Are your systems – and departments – siloed and not talking to each other?
Assessing the current state of your business will allow you to understand shortcomings and help you decide where to direct your efforts. Once you’ve found the gaps, you need to assess the potential impact of each one to create an effective plan to address them. You may not even need to make any new IT investments right now; you already have huge potential for improvement in your systems, you just need to investigate.
Where can you use IT to improve company profit margins?
IT holds so many possibilities to improve company profit margins, but below are just a few examples:
Use IT to Increase Production Velocity
The shorter the time from order to delivery (of product or service), the lower the overheads per unit produced. Evaluate your process to see if there are ways you can speed up the process. Can you use IT solutions to automate, template or pre-do any of the steps? Are there any steps which could be removed or streamlined further? Are there any recurring problems or blockers which need to be addressed? If you’re dependant on a supply chain, is there a way to use IT to notify you of potential issues (e.g., stock shortages, 3rd party lead-times, demand increases) ahead of time, so you can rectify before it causes real problems?
Use IT to Increase Customer Retention
Attrition costs money. You need to ensure that your customers not only stay with your business but remain happy and continue to purchase. A CRM system ensures that all relevant customer information is stored in a central location, which can be accessed by relevant Customer Service team, Sales or Account Management reps. You can use this information to ensure communication is more relevant, accurate and frequent, thereby providing a better customer experience and increase the likelihood of upsells and cross-sells.
A centralised portal of information also allows any member of the team to pick up communications, say a rep leaves, is on holiday or ill, allowing for a smooth experience for the client. If you build in automation and reporting to ensure service levels are client expectations are met you will make significant inroads in retention.
Use IT to Automate Administrative Duties
Administration is a necessary part of any business, but it’s often time-consuming, repetitive and, sometimes low value. Automated workflows can reduce the burden on employees and allow them to focus on higher-value activities. Some tasks you could consider automating include responding to customer queries, collecting customer data, scheduling appointments, generating quotes, invoices and proposals, and debt collection. If you actually map out and review your core processes and procedures the like candidates for automation should become clear. I would recommend seeking advice from an IT consultant with a systems analysis specialism about where automation could be deployed and where it would have the greatest effect.
Use IT to Identify & Reduce Wastage
Is quality an issue on some of your products or services? Are you buying leads that your sales team are not following up with? Are you investing in pay-per-click ads that are not generating interest? Are expensive staff spending too much time on administrative work? Data can help you pinpoint these areas of waste and allow you to cut unnecessary spend – which you can then invest in the right areas.
What other potential results could you achieve?
- Improved Efficiency: When time-consuming, repetitive, low-value processes are automated, the workflow becomes faster and allows the entire business to become more efficient.
- A Better Customer Experience: More accurate, frequent, and relevant client communications help improve the customer experience, thereby increasing retention. Customers are more likely to remain with the business, make further purchases and recommend you to others.
- More Informed Decision Making: With access to more and better-quality data, you can make the right decisions that will really drive the business forward. You know what actions drive a return and what doesn’t, you can direct effort and spend to the right areas.
- Better Resource Allocation: With repetitive but necessary tasks automated it will free up your employees to spend time on more high-value tasks such as account management, project management and business improvement.
- Improved Market Penetration: With improved efficiency and better decision making, the market penetration process becomes easier, resulting in customer base growth, increased customer satisfaction and greater profits.
- Easier Project Management: Tracking time spent and how long tasks take will help you manage customer projects more effectively. You can assign resources more effectively and bill customers more accurately for work completed.
A Final Note of Caution
The restrictions of the pandemic have proved just how vital IT systems are to business operations. While in a downturn it is tempting to slash all spend to the bone to protect those margins, this can cause significant harm in the long run. The extra margin you are looking for is already in the business, you just need to make the improvements to dig it out. If you are unsure where to start, then an audit or an independent review from an IT consultant is a good place to start. Yes, it will require some investment, but this one-off ‘purchase’ will show you where to find the hidden value you need to improve company profit margins.
Are you looking to actively improve your company profit margins?
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