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If you’ve got a product or service that’s not profitable, what are your options?
Hi, this is Judi Otton with GrowthCast and we’ve been talking about profitability for the past few weeks and if as you do this analysis you will likely find some products or services that are not profitable or not as profitable as you’d like them to be.
Obviously, you can decline to sell those, or you can raise the price. But there are some other more creative options, as well, that I want you to explore.
First of all, is there a way to deliver this service or product within the price that you want to be? I had a client that did just that. They wanted to release a new service. We discovered that they were going to lose money. So we put the effort into creating standard procedures, and checklists, and they were able to deliver this service quicker, and interestingly enough, more consistently and reliably than they were before.
You may also be able to find a new supplier or a new subcontractor if it’s a service or even a firm that you can partner with, because of the way they’re set up, they will be able to deliver this product or service cheaper than you can. Different firms have different structures and it changes our cost structure.
Can you split up the service or the product and do the part that’s profitable and maybe kill or outsource the part that isn’t? Are there ways that you can salvage pieces of it and not throw the whole thing out?
And finally, you may decide to sell it anyway, even though you’re losing money. I want you to do this consciously though, I don’t want you to be doing this unconsciously and just selling, selling, selling, nonprofitable stuff and then wondering why you don’t have any money. There are things called loss leaders. Supermarkets do this all the time to get you in the door and then you’ll buy more stuff. Maybe this is something in your business that you know is not profitable now, but customers typically buy more afterward, so you’re willing to take the hit. But again, do it consciously.
This is Judi Otton with GrowthCast and I’ll be back next week with a new Fiscal Fitness Tip of the Week.