Looking
for ways to increase your profits in an era of rapidly increasing costs?
For a business with a mix of products and services, one of
the most interesting numbers is the gross margin – sales less direct costs.
When reviewing their accounts and wondering how and where
profits can be increased, some business owners focus on certain overhead costs
and make plans to reduce them. Of course, this is understandable as
overhead costs are listed line by line whereas the biggest number in most sets
of accounts is the cost of sales with no detailed analysis aside from
materials, labour, etc.
Reducing any cost that doesn’t negatively impact the future
success of the business is absolutely correct. But many are missing
bigger opportunities where even bigger savings and increased margins are
possible because of a lack of information on gross margins per product/service
or per customer.
Getting this information is like switching on a light in a
dark room, revealing the good, the bad and the frequently quite ugly!
Switching on this light however is only the start.
Taking the correct remedial actions such as increasing
efficiencies, cutting out non-value-adding activities and if necessary, cutting
products/services and possibly customers that won’t contribute to profits, are
all actions to take.
So, to increase your profits, don’t just ask your customers
for a price increase. Why not instead take a look under your own
bonnet and shine a light there?
If your engine looks as if it’s just been serviced and is
ready to race, then tell your customers they need to pay more or alternatively
try to get better ones.
Finding the correct light switch is the key.