Your gross profit, sales less direct costs, has to fund the overheads and what’s left over after that (apart from what is due to the tax man) belongs to you. This is the heart of your business so let’s drill down to the elements that make this up and see where we can look to make changes to improve your gross profit.
Should I be looking at my team’s efficiency? Yes as this will probably have the most impact. Efficiency improvements can come through training and development in both technical and managerial skills, investment in these areas can bring significant returns.
Will better systems help? Good systems help the business to be more cost effective as there will be standard processes that can be optimised to minimise costs and improve productivity. Systems can always be improved and you should never fall into the trap of closed thinking and ‘this how we do it here’, some of the best innovation has come from copying ideas from another industry.
Be aware of your direct costs? Sometimes the cost of stock/materials will rise and if this doesn’t get noticed you could start to lose money. So it pays to have someone checking invoices so that suppliers price rises get noticed.
Is pricing an important factor? Pricing is one of the key factors and deserves a whole blog on its own. We have seen examples of pricing for new products that fall below what could have been achieved because the business owner has taken the wrong reference point / view of the product or service when deciding the price. Also, some business owners can be very cautious about pricing which means they won’t be making as much gross profit as they could.
Is sales volume important? Sales volume is important but you need to be aware of the amount of gross profit per unit sold or service provided to ensure that you will be making enough gross profit in total to cover overheads and make enough net profit for you.
To build the business you need to have the life you want may well require a certain level of profitability, paying attention to these factors will help you on your way to improve your profit.
We work with business owners to build the businesses they need to have the life they want, so if you want to talk about how to improve your gross profit get in touch with me on 01803 296678 or email email@example.com