How to Increase Profit Margins

Every business owner wants to increase their profit margins. 

That’s no surprise. Who wouldn’t want to take home more money for all their hard work?

But if you’re a naturopathic or functional medicine doctor, profit margins are especially important. 

That’s because the work you do is so tailored to your clients. You don’t offer a one-size-fits-all approach. That personalization gives people the best care possible — but it also means your fees and expenses will look different across scenarios.

If you want to make the money that you deserve, you have to learn to increase profit margins.

In this article, we teach you how to do just that. Check out the strategies below and put them to work for your practice.

What is Profit Margin?

First of all, what is profit margin?

Profit margin tells you what percentage of revenue your practice keeps after paying for expenses.

The simple formula looks like this:

Profit Margin Formula

This formula lets you compare your net profit (or bottom line) to your sales (or top line). Basically, it tells you if you are making a good return on your services.

And that’s important!

While you may have cash flowing in and out of your practice, profit margins tell you whether you’re actually taking home any money. 

Before you try to scale your business, you need to have good profit margins. 

Profit Margin Example

Let’s say you have two different treatment plans. Which one is going to bring you the most profit?

Option One is quite technical. And because it seems so sophisticated, clients will gladly pay $10,000 for it. The problem is, operating costs for option one total almost $9,500 per client. 

Option two is much simpler and doesn’t take as long. You’ve discovered clients will pay a maximum of $2,500 for it. But because it requires less equipment and a smaller time investment from you, it costs you $2,000 per client.

Which treatment plan should you choose?

Based on the limited information in this scenario, you might say Option One. After all, you’re making the same amount of profit as Option Two — but you’re bringing in 4x the revenue

But when you look at the profit margins, Option Two is the clear winner.

Profit Margin Formula

Profit Margin Formula

For every treatment plan, Option Two lets you take home 20% of the revenue as pure profit. Option One gives you a mere 5%. 

Though there are other things you’d want to consider when making a business decision, option two gives you a much greater return on your investment. If you’re looking to scale your practice, that would likely be the route to go!

Here’s How to Increase Profit Margins

Understand your expenses to calculate your profit margin

Understand Your Expenses

If you want to increase profit margins, it’s important that you understand your expenses.

What factors are associated with creating and selling your services?

Some expenses might be obvious — like rent on an office. Others may be less apparent. But both cost you money!

I recommend that business owners make a detailed list of every expense they have. It might be helpful to do this overall for your practice. But if you can do it for each service you offer, that’s even better.

Once these are written down, you can evaluate them. Are there some expenses you could get rid of entirely? Find a way to cross them off the list.

Then once you’re narrowed down to necessary expenses, try to find more cost-effective alternatives.

You may be used to buying from a certain brand or provider. But if another can offer you a better deal, you can reduce expenses and take home more profit. 

Decide What Costs Should Be Paid By Clients

Some expenses are best paid by you. But for others, it makes sense if they’re paid by the client.

For example, say your care includes access or membership to some kind of software. You can pay this cost yourself and then just charge your clients more for their services. Or you could have the clients pay for the relevant fees directly to the software company. 

Both options are viable. The first makes one less thing your client has to worry about but the second lets you keep your rates lower.

Ask some of your best patients what they would prefer. 

There may be costs you’re picking up unnecessarily. If you just asked clients, they might not have any issues paying for it themselves.

If you can cut your expenses, you can increase your profit margins.

Kill the Sacred Cow

When you’re in business for a while, strange things can wind up on pedestals.

You can grow so accustomed to the way you’ve done things before, that you’re not able to imagine doing them any differently.

But sacred cows eat up healthy profits.

Take a good, hard look at your business practices. See if there’s anything on a pedestal that doesn’t belong there. It might be a limiting belief, a mistaken assumption or an old way of working that became inefficient.

Identify what is holding you back and then get rid of it.

This will help you cut expenses and find more efficient ways of doing business.

Unsure where to start?

Again, it can be helpful to talk to some of your best patients. There may be things they can suggest that you’ve never considered before.

What You Need to Know First

Learning about profit margins

This article shows you how to increase your profit margins.

But before you begin slashing expenses, get your medical practice firmly in view.

While profit can and should be exciting, profit margin needs to match what you do.

Don’t compare your margins to businesses offering wildly different products or services. Your entire business model is different; your profit margins should be too!

And you always need to keep in mind that the numbers in your formulas represent a client’s experience. While you can charge more or cut expenses, never sacrifice your client experience to do so. Even if a strategy can save you money today, it will cost you business in the long run.

A great profit margin should help you take home good money, while providing the type of service that keeps your clients happy to recommend you to all of their friends.

Want help striking that perfect balance? At Every Single Bean, we can help you find the best ways to increase your revenue and lower your expenses.

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