Reducing Your Costs
As you increase turnover, do your profits rise proportionately?
Many small and medium sized companies find that their profits do
not increase much with turnover, even though their owners and Managing
Directors complain of being excessively busy.
Often managers of small businesses ‘chase’ turnover
- trying to increase this at all costs. The view is that if turnover
is increasing then things are going well. This is not always the
case. Managers should be concentrating on making the business more
profitable. Sometimes companies become more profitable after reducing
turnover, and paying attention to the details.
Profits are directly linked to turnover as against cost of producing,
selling and administering the product or service. If your product
is losing money because it has not been costed correctly, then the
more you sell, the less profitable you will become. Very often the
price of a product is directly linked to the prices being offered
by a competitor. The temptation of course is to equal or beat competitor
prices, but this may not take into account the costs of production
or distribution. Although you may increase turnover by using this
method, it is unlikely to produce more profit.
Once you have accurate data on all the costs associated with a
product, then you can make logical decisions about pricing - you
may have to charge more for it, or you may find you really can afford
to sell cheaper than a competitor. Either way you will have the
confidence and the knowledge that every product you sell is profitable.
Many business owners overlook the obvious, that cost savings directly
affect the ‘bottom line’ profit figure. ibd
can advise you on how to reduce your costs, by looking at new production
methods, better working practices, more effective use of time and
materials, smarter purchasing and payment methods, batch production,
reducing stock levels, and many other areas that can directly affect
the profitability of a company.  |
