Do you really know how much profit you make on each and every sale?
Do you even know if you make a profit?
Many businesses are unaware of the exact profit they make as they don’t monitor closely enough the different elements that go to make up the sale.
I was speaking to a new client yesterday on exactly this topic.
His business has a number of projects that operate at one time...the project is quoted, the client agrees the quote, the project is delivered and there is never any review of whether the project has made money or lost money, which means that when the next project comes along, it is quoted in the same way...and there is no analysis done as to whether the business (because of the project quote and costings) is driving itself into a early grave.
When businesses do have a note of costings are generally incomplete or outdated.
Price lists are not regularly reviewed.
Sales volumes and sales mixes change and become out of step with the costing model.
Staff time is usually not allocated properly to jobs.
A simple check lies within your management accounts and is yet another reason why you must keep these up to date.
Monitoring your gross profit percentage will identify any negative trends before it’s too late.
If you don’t have a tried and tested costing system in place for your goods and services then it is vital that one is created.
With so many variables influencing your costings they should be regularly reviewed, at least annually and after key economic changes.
- Regularly review your own price lists and match to your costings.
- Take a least a sample of your most recent jobs and work out if they are being priced properly.
- Closely monitor gross profit.