How do you address the GAP? It's the difference between what you think you should be making and what you are making in your business.
In this quick, yet powerful episode, we cite five things you should look at that creates that gap and the big erosion components on the margin of your business. 💁🏽🕳 #PreventProfitLeakage
➡️ Many business owners overlook how they incur unnecessary costs for customer acquisition. Beware of this trap: you might be spending money on marketing, but you do not understand the returns. 👥🛒
If a customer costs you $100 to bring them into a sales channel, but you're only making $20, you've got to work out all the aspects, including if they're worth selling to that customer. Be careful how you spend money on marketing, but you do not understand what the returns are. It comes back to the fact that you can only manage what you can measure.
➡️ Understand every component that goes into the actual costs to deliver your products. Overlooking the minor details in manufacturing costs contributes to a big chunk off revenues in your business. 📈
There are hidden little factors in importing, such as overseas charges, destination charges, or a high-energy charge. A few cents added to every unit increases your cost base in the long term. Make a bottom-up approach and learn to understand every component that goes into the actual cost to deliver a product.
➡️ Understanding your business model is crucial to prevent profit leakage and ensure making sound decisions in your day-to-day. Are you a high-volume, low-margin business, or are you a high-margin, low-volume business? This determines your approach. "Turnover is vanity, and profit is sanity." It's about looking at the customer mix and product mix. You can get less finance costs, pressures, and overheads and make more money when you make the right strategy changes.
➡️ Bad debt and revenue going down the drain with money you earn but don't collect. This usually comes down to poor management. Are you on top of your accounts? Are you following up on collections? If you got seven-day terms, are you making sure that your customers are meeting the seven-day terms? Are you following up with customers? If you don't call anyone, no one will pay you.
➡️ Know your gross margin and net margin and the difference between the two. Work on your break-even percentage, which considers your office, manufacturing, cost of goods, etc., to identify what you need to charge actually to make a profit. People often have profit leakage because they're undercutting themselves before they even get to the market.
Tune in to this new episode of CPR Business Advisory ▶️ 5 Ways to Prevent Profit Leakage with Darren Betts & Paul Church.
Key points covered in this episode:
[01:17] Margin erosion is something people often focus on, but they miss the details within it.
[02:42] Defining OPEX
[02:56] #1 Customer acquisition costs
[04:10] #2 Missing manufacturing costs
[07:26] #3 Bad debt and uncollected money you are earning
[08:46] #4 Not understanding your business model
[11:20] #5 Identify your break-even percentage
#CPRBusinessAdvisory #virtualCFOservices #cfo #accounting #finance #business #virtualcfo #entrepreneur #smallbusiness #accountant #cpa #businessowner #startup #chieffinancialofficer #accountants
————————————————————————————————
At CPR Business Advisory, we've helped entrepreneurs, businesses, and managers leverage our 60+ years of hands-on commercial experience to see their businesses differently and implement time-tested changes effectively.
Connect with us and visit https://cprba.com.au/