Do you know how much each of the products or services that you sell are contributing to your profit? For many businesses this information, which is critical for good decision-making, remains hidden in their accounting system and business owners move forward under the assumption that the more sales they can get the better it is.
However this may not be true! Could it be that those additional sales are actually costing you money? On top of the product cost and the labour cost that you can easily associate with the sale there are other general overhead costs which are often considered to be unavoidable costs of doing business. These include rent, interest on overdraft, collecting debt, customer service, advertising and the time spent in administration, sourcing the product, and managing the business and its support functions.
If you want to spend resources on what will give you the highest return you need to understand what general overheads you are committing to each of your sales channels and product groups. From that you can work out what costs would disappear if you were to stop selling to those customers. Additionally, if sales in a specific product line increased, what costs would increase? And, if you changed your opening hours, what would happen to your profits? There are many more scenarios that are specific to your business that can be investigated once you have worked out the key drivers of your overhead costs.
Many modern accounting systems can help you to record your sales and some of your costs by activity but in most cases further work will be required to allocate your overheads and work through the scenarios. If you need help with this then contact us at Shifting Focus Business Consulting as we specialise in providing business owners with the information they need to make fact-based decisions.
