Where’s my profit gone?

reduced profits

 

Are you working harder, winning more business and growing, yet finding that your profits seem to be getting less and dwindling?

 

If so when was the last time you reviewed your business expenses and selling price (also known as your breakeven point).

 

If you are doing more business, it stands to reason you should be earning more money.  However if you have not changed your prices in recent years to reflect the rising costs of doing business, you will quickly find you are earning less per unit than before, hence need to do more business just to make the same amount of profit.

 

Your breakeven point is usually something you calculate when you start your business, whether you call it this or not, it basically looks at how much it costs to deliver a product or service and uses this to determine the price you need to charge.  You then look at whether this is an acceptable price within your market and from here decide if it’s worth going into business or not.

 

The problem is over time your costs can creep up, electricity, rent, wages etc. all increase.  Ideally you want to pass this cost onto your customer by increasing your prices, however this is not always possible.  As more competition enters the market, you often find prices are driven down.  This may mean that you are faced with a situation where your cost per unit has increased, however your selling price has decreased.  All of this equals less profit for you!

 

So what can you do about it?

 

The first step is to list and evaluate all your business costs and recalculate your current cost per unit.  Now you know how much you need to cover the cost of your product or service you need to review how much you can charge.
 

Step two is to carry out some research on how much others are charging for the same or very similar products or services.  How does this compare to your price?  If you are currently charging less than the competition maybe it’s time to increase your prices.  Sure it may mean losing a couple of customers, however it also means that you need to do less work to make the same profits.
 

If you find that your prices are in line with the market, you have several options;

 

  1. Firstly you can try to sell more and work harder to generate more profit overall and accept that you’re now earning less per unit, and see if you can create economies by selling in volume.
  2. Secondly you can review all your costs and see if you are able to find alternative cheaper suppliers or put pressure on your current suppliers to give you a better deal.
  3. Thirdly you can review your systems and process to see if there is any way that you can improve efficiencies in what you do. There is new technology emerging all the time which allows processes to be automated, shortened and generally made more effective, saving you time and money.
  4. Finally you can review your product or service and see if there is any way you could differentiate it from competing products. Can you introduce something that will be of value to customers, something that they will be prepared to pay a premium price for?  This will then allow you to increase your price per unit and become a niche player, which in turn will improve your profitability.

 

 

Sometimes you can be so involved in running your business it can be hard to see the wood for the trees.  So if you are looking for ways to improve your profitability and would like expert advice to maximise your returns quickly and effectively, contact us today on 9380 3555.  We can make running your business easier!

 

For a FREE online business review to receive a tailored report outline business improvements you can make yourself today click here.

Leave a Reply

Your email address will not be published. Required fields are marked *