What is your single most important profit point? The answer comes from understanding customer priorities. This is accomplished by talking to customers and understanding their problems based on their perception, not yours. Today you have to reverse the traditional approach in which priorities are: core competencies, what we sell, and then the customer. The new approach becomes customer priorities, system solutions, required competencies, and assets. A good way to do this is to uncover the customer’s systems economics such as costs, time, hassles, errors, and re-dos. In other words; the big picture of what the customer lives with…not just the small picture of your service and productivity.
Once you know what the customer’s system economics are, you have enormous knowledge as to what real value you could add. For example: in the paper industry, buyers used to focus on who had the lowest cost for forms. Customers were looking for ways to reduce company expenses. Research of the system economics uncovered that for every $1.00 spent on a form, the company spent $20.00 filling it out, storing it, editing it, copying it, and disposing of it. Creative managers looking at total cost reduced forms from $20.00 to $10.00 through the use of electronics. What can you do to help customers cut costs? What skill can you bring to customers that will help them to increase their profits?
Unless you undertake a gross profit analysis measuring the contribution from every major component of your service and product line, you may not be aware that you have problems. The answers to these questions will enable you to increase prices, offer more high profit services, and identify profit centers you never knew you had. A profit center is defined as a part of an organization with assignable revenues and costs, and hence ascertainable profitability.
Some examples of profit centers include:
- Isolating profits of services, products, employees and customers
- Analyzing each category individually will get you on your way to greater profitability
- Combing through customer invoices and matching them with the cost of goods
- This will show you if products and services are being priced properly.
- Unique combinations of packaging, services, and products
- This creates an opportunity to increase both mark-ups and gross profits.
- Strategic packaging for higher profits
- Packaging for profit lies in creating a perception of total better value. If a customer perceives a service or product to be higher in quality and the provider to be solid and dependable then confidence and trust is the perceived result.
- Reducing time card errors
- Preventing hours over budget
- Eliminating material costs over budget
- Theft control
- Determining unprofitable customers or services
The idea is to choose profits first and sales second. The solution can be to determine the effect of raising prices and adjusting prices to maximize profits. In some cases the way to maximize profit is to lower prices to increase total gross profit dollars by dramatically increasing volume. Another way to increase profit is by increasing mark-ups. You should be asking, “What is it worth?” How much can you sell at what price? Once you have developed an accurate price sales curve, you can then add costs to determine where your maximum profit will be generated.
Holt Management and Consulting can provide you with the knowledge to make smarter financial decisions, reduce risk, and plan for future investments in your business. Don't let unresolved problems continue to erode your business. Call Holt Management & Consulting today for a free Business Condition Assessment.