Drivers of Profit… lets talk management accounts...

At jkc consultancy we think it is time to put some good practices in place that will support drivers of profit for your business.

The first step to increasing profits is regular monitoring. When your turnover is healthy it is easy to also assume that profits are rising by the same degree. Sorry, not always the case! In a lot of businesses, costs may be eating away at those precious margins.

Firstly, let’s try to understand and then cut your costs. Try to tackle excess costs in a way that won’t damage your business. For example, swapping for a lower-cost product or component; would this bring benefits to the bottom line or alienate customers. If it is the former, then do it! Speak to the team about cost-cutting, you will be pleasantly surprised about the ideas that come forward. What is key here is that you are also supporting their understanding of business risks; get them thinking about this!

Secondly, change your price structure. Pricing is the biggest driver of profit, so it is so important that you get this right. Understand what your cost to deliver really (every item, with nothing left out) and understand what your costs should be. We know that customers buy with value and price so please do take account of customer feedback and desires before you update your prices.

Thirdly, what brings in the income to the business? Work those numbers to really understand your products or services. Those that offer both high sales and high margins are clearly the ones to cherish and develop, but the others could use your attention too. Consider a price increase for products that sell well, but with lower margins. Focus your sales efforts on any products that offer high margins but low sales. You might decide to jettison your low-sale, low-margin products – but consider using them as a loss leader first.

Fourth and finally, are fixed costs really fixed? I don’t believe so! I work with clients to really study and understand overheads. For example, build closer relationships with your major customers and suppliers can only help your business; become better informed about their concerns and challenges and be in a better relationship to open doors for negotiation and discussions about discounts, or longer term payment agreements. This is a win-win.
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Happy number crunching… it is challenging but well worth it.