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Where’s your profit coming from?
Hi, this is Judi Otton with GrowthCast and if you’re like most business owners, you have more profitable products, product lines, customers, customer segments, and less profitable ones. And many business owners don’t know where exactly their profit is coming from.
This can get you into trouble and let me tell you why.
I had a client not too long ago doing very well, doing business with one market segment and they wanted to get into another one. They knew exactly what they could charge and they knew that if they posted some Google Adwords, they’d flood their pipeline and they have a ton of business. But as we started looking at it, it was going to cost them more to deliver this service than they can charge, meaning they were going to lose money on every single transaction. And after a period of time, they would have been in really big trouble as a company and not have known why.
So it’s really important to know the profitability of each of your products, product lines, customer, and customer segments and I realize this sounds like a lot of work and a big deal. But your accounting system can do most of the heavy lifting if you make sure that all of your costs, materials, and even and especially your labor are tied to a particular product or project. It’s pretty easy to figure out the profitability per deal, profitability per customer, profitability by product, and when you know that you can really lean heavily on those more profitable items and maybe not emphasize the less profitable ones and really grow your business in a beautifully profitable way. Otherwise, you risk the chance you risk the possibility of increasing your revenue while you’re decreasing your profit.
This is Judi Otton with GrowthCast and I’ll be back next time with a Fiscal Fitness Tip of the Week.