Cost Analysis

One of the most important parts of the cost of sale process is for us to conduct a complete Cost Analysis on each product or service we sell. Very few businesses have ever done this. When we begin applying this process in our company, we will increase our business’s profits dramatically.

Fifty percent of advertising is wasted, but no one ever knows for sure which fifty percent that may be. As a result, advertising budgets always seem higher than necessary. This problem persists in many areas of business today. Money is being wasted, but no one is exactly sure where and how this is happening.

Many businesses today are earning no profits simply because their costs of doing business are not coordinated with their cost of sales. Many products and services are priced by business owners and leaders who are completely unaware of the real costs involved in bringing these products or services to market. These mistakes in pricing are then buried in the overall operations and general revenues of the business. Their thinking is “We will make it up in volume” and nothing could be further from the truth.

As we begin to examine these numbers, we will find, in many cases, our biggest clients are not always our most profitable, and our biggest selling products or services are not our most profitable ones either. We may find our costs of doing business with some clients and with some products are so high it is hardly worth our investment. This will only be determined by taking a hard look at the numbers.

We need to be our own turnaround specialist all the time, and most especially when business slows down for any reason. To boost our profits, we need do a complete cost analysis on our business and move immediately to focus the energies of our business on those areas that represent the very best sources of net cash. This process requires we continually analyze our business so we know exactly the profitability of every product or service we sell in comparison with every other product or service we sell, right down to the penny.

With a little effort, every single product or service can be organized on a scale from the most profitable to the least profitable, both, on a per item and/or per hour basis, and in net dollar amounts. There is always one more profitable than any other.

We begin our cost analysis by determining the exact gross sales revenues we receive from a product or service after all subtractions for defects, returns, breakage, loss, wastage, and bad debts. Take every single deduction so our gross dollar amount is completely accurate, and we are crystal clear about the exact amount we are netting from our sales.

You will probably find that fully half of your product and service offerings are generating very little profit or even causing you to lose money with every sale. A turnaround specialist would immediately either raise the prices of the low profit items or discontinue them altogether. We must do the same.

“Remember, Success is always Within Reach”

#terry ogburn #entrepreneur #Business #Business Development #Business Sales #business coach #business coaching