10 Operating Margin Tips for Entrepreneurs Starting their Business Journey
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10 Operating Margin Tips for Entrepreneurs Starting their Business Journey
Embarking on an entrepreneurial journey requires a strategic approach to financial management; this article distills essential operating margin tips derived from seasoned experts. It offers a roadmap for new business owners to prioritize efficiency, understand expenses, and adopt a margin-centric mindset from the outset. With insights on unit economics, cost monitoring, and leveraging AI for decisions, this guide is a valuable resource for shaping a robust financial foundation.
- Focus on Unit Economics First
- Prioritize Efficiency from Day One
- Understand Key Expenses Early
- Build a Solid Foundation First
- Adopt a Margin-First Mindset
- Approach Every Expense Like Your Own
- Treat Operating Margin as a Guiding Principle
- Focus on Getting Sales First
- Monitor Fixed and Variable Costs Closely
- Use AI for Data-Driven Decisions
Focus on Unit Economics First
When it comes to operating margin, the one piece of advice I always give to entrepreneurs is to focus on your unit economics first. I learned this during my time at Deloitte, where we'd frequently see early-stage businesses chasing growth without truly understanding if their core products or services were profitable on a per-unit basis. It's easy to get blinded by revenue numbers, but if you're spending more to acquire a customer than you're earning back within a reasonable time, you're building a shaky foundation.
I remember a founder who came to spectup with explosive growth but razor-thin margins. We helped them dig into their cost structure and found that by renegotiating supplier contracts and optimizing fulfillment processes, they could improve margins by almost 15% overnight. It's not the most glamorous work, but those small tweaks make a world of difference when you're scaling.
In the early stages, the key is balance. Think about cost discipline without skimping on critical investments like branding or customer acquisition. One of our team members at spectup often says, "Every dollar saved here should free up a dollar to build your future." A big mistake entrepreneurs make is ignoring fixed costs that don't scale easily-like over-committing to fancy offices or hiring too aggressively. Keep your operations lean but adaptable, and make every expense justify its existence. More than once, I've seen founders surprised by how much they could stretch a budget when they prioritized margins early.
Prioritize Efficiency from Day One
One key piece of advice for entrepreneurs thinking about operating margin is to focus on efficiency from day one. Too many business owners wait until they're losing money to analyze their margins, but by then, it's often much harder to fix. The most important things to focus on early are pricing strategy, cost control, and operational efficiency. Pricing needs to reflect both market demand and profitability, not just what competitors charge. Cost control means keeping overhead low and making sure every expense contributes to revenue. Operational efficiency is about streamlining processes, eliminating waste, and ensuring employees are productive. If you build these habits early, you create a scalable, profitable business rather than one that struggles as it grows.
One of my clients, a small manufacturing business in Australia, was generating good revenue but had razor-thin margins. They weren't tracking production costs properly, and their pricing was based on assumptions rather than actual data. I helped them break down their cost structure, identify waste, and adjust pricing based on real profit margins. Within six months, their operating margin increased and they had more cash flow to reinvest in growth. My experience running my own multimillion-dollar telecommunications company and my MBA in finance gave me the tools to recognize the inefficiencies immediately and implement a structured plan. The result was a business that went from surviving to thriving, simply by understanding and optimizing its margins early.
Understand Key Expenses Early
My advice to entrepreneurs is to focus on understanding your key expenses early, especially fixed costs like property taxes, insurance, and utilities, which can have a significant impact on your operating margin. In the storage industry, these costs are unavoidable, so controlling other expenses such as staffing, maintenance, and marketing is crucial to maintaining a healthy margin.
In the early stages, prioritize occupancy growth while keeping costs manageable. Promotions like our First Full Month Free offer can drive new business, but it's also important to monitor how long tenants stay and ensure your services justify the rates you charge. Additionally, invest in scalable technology, such as automated billing and online account management, to minimize labor costs as you grow. By keeping a close eye on expenses and maximizing efficiency, you'll set a strong foundation for sustainable profitability.
Build a Solid Foundation First
For entrepreneurs just starting out, my advice on operating margin is simple: don't get bogged down in the minutiae of percentages just yet. Instead, focus on building a solid foundation for your business. This means understanding your market, creating a product or service people truly want, and getting those first crucial customers on board. Think of it like this: you can't fine-tune a car engine before you've even built the car!
In the early stages, prioritize creating a sustainable business model. This involves understanding your costs, pricing your offerings strategically, and generating consistent revenue. As you gain traction and start to scale, you can then delve deeper into optimizing your operating margin. Remember, it's a marathon, not a sprint. Focus on building a strong, healthy business first, and the margins will follow.
Adopt a Margin-First Mindset
The biggest mistake early-stage entrepreneurs make with operating margin is not thinking about it early enough. Revenue growth is exciting, but if your margins are razor-thin, you're just scaling a problem.
Here's my advice: build a margin-first mindset from day one. That means pricing for profit—don't undercharge just to win customers, set prices that reflect value and ensure healthy margins. Keep costs lean—early on, every dollar matters, so focus on essential expenses and avoid scaling overhead too fast. Optimize for efficiency by automating processes, streamlining operations, and eliminating waste before inefficiencies compound. Test profitability early—before going all-in on a product or service, test whether it can be delivered profitably at scale.
Strong operating margins give you flexibility, stability, and long-term growth potential. Focus on them from the start, and you'll build a business that thrives, not just survives.
Approach Every Expense Like Your Own
When I first began, I believed that increasing revenue was a sign of success. However, I soon discovered that my profits were minimal. I was investing in areas that seemed significant but didn't truly make a difference. The most important takeaway is to approach every expense as if it were your own money. If it doesn't contribute to your growth or improve your operations, it's just a distraction. Cash flow is essential for survival—guard it closely.
Treat Operating Margin as a Guiding Principle
Good Day,
What is one piece of advice you would give to entrepreneurs or business owners who are just starting to think about operating margin?
As a Co-Founder of VMeDx, I advise entrepreneurs to treat operating margin as a guiding principle, not just a financial metric. It reflects how well you balance efficiency with value creation and is a key indicator of sustainability.
At VMeDx, we found that managing operating margin isn't about cutting costs but being intentional with every dollar. Focus on three pillars:
Invest in Scalable Efficiency: Adopt tools or processes that maximize impact with minimal recurring costs, like automation, to reduce overhead without sacrificing quality.
Optimize Without Overextending: Focus on high-value areas and scale thoughtfully, avoiding growth that stretches resources or shrinks margins.
Think Long-Term: Align decisions with your vision, ensuring efficiency today supports consistent, sustainable growth tomorrow.
By strategically prioritizing operating margins, you build a foundation for resilience and success.
What are the most important things to focus on in the early stages of a business?
In the early stages of a business, building a strong foundation for sustainable growth and adaptability is key. From my experience at VMeDx, here are the most important areas to focus on:
Solve a Real Problem: Identify a meaningful problem for a well-defined audience and offer a solution that delivers real value.
Build a Strong Team: Assemble a small, adaptable team with complementary skills aligned with your mission.
Validate Your Idea: Test your concept with users through a minimum viable product (MVP) to gather feedback and refine it.
Manage Finances Wisely: Monitor cash flow, control expenses, and prioritize spending on growth-driven activities.
Define Your Unique Value Proposition (UVP): Clearly articulate what sets you apart and why customers should choose you.
Build Relationships: Network with customers, mentors, and stakeholders to access funding, partnerships, and expertise.
Ensure Scalability: Develop a business model that can grow with demand and adapt operations as you expand.
Stay Adaptable: Be flexible and ready to pivot based on feedback or changing market conditions.
By focusing on these priorities, you can build a resilient, purpose-driven business.
Focus on Getting Sales First
In the early stages of a business, the most important thing to focus on is getting sales. Generating sales proves that a market exists for your business, which is key to your long-term success.
Operating margins are crucial, and fortunately there are ways to improve them. The one piece of advice here is that you have 3 levers to improve your operating margins: 1) raising your prices; 2) if you have a mostly fixed cost business, increase your sales volume; 3) cut costs.
Each of these 3 levers can be used to improve your operating margins.
Monitor Fixed and Variable Costs Closely
One piece of advice I would give to entrepreneurs or business owners starting to think about operating margin is to closely monitor both fixed and variable costs from day one. In the storage industry, for example, operating expenses like facility maintenance, utilities, and security systems can add up quickly if not managed effectively. It's important to identify areas where you can maximize efficiency without compromising on service quality.
Early on, focus on optimizing revenue streams and ensuring high occupancy by targeting the right customer base. For us at Mighty Vault Storage, expanding into RV and boat storage was a strategic move that boosted our margin by attracting long-term tenants with specialized needs. Entrepreneurs should also prioritize cash flow management, negotiate favorable terms with vendors, and consistently track key financial metrics to maintain a healthy balance between costs and revenue. A strong foundation in these areas will set the stage for sustainable growth and profitability.
Use AI for Data-Driven Decisions
When you're just starting to analyze your operating margin, AI can be a game-changer. Instead of staring at spreadsheets and guessing where to optimize, create a custom AI model-like a customGPT-tailored to your business.
Start by feeding the AI your key numbers: revenue, cost of goods sold, operating expenses, and any other relevant financial data. Then, ask it to analyze trends, flag inefficiencies, and suggest improvements. For example, it might highlight that a supplier switch could increase margins by 5% or that adjusting pricing on a slow-moving product could drive higher profitability.
The key is making data-driven decisions early on, rather than relying on gut instinct. AI won't replace your judgment, but it will surface insights faster-helping you focus on the tweaks that will have the biggest impact on your bottom line.
