Profit is not a Dirty Word
While your customers may want to minimize your profits to make them believe they are getting a good deal, you must consider staying in business, earning a profit that will allow you to pay your bills, your employees, your vendors and suppliers and plan ahead to grow your business.
While a widget may cost you $10 plus the value add you do to it, the employee time in handling and improving it, your office/manufacturing overhead and the cost of promoting it to market may result in your cost being $33, you still have to earn a profit on it.
The two different methods of calculating profit are:
$33.00 x 10% = Net Profit [$3.30] Net profit is 10% of costs.
$33.00 / 90% = Net Profit [$3.67] Cost is 90% of $36.67
After adding these up, adding a 10% profit would result in a selling price of $36.30. I this case, the seller is taking 10% of $33.00 and adding it to the $33.00. In some cases, manufacturers like to look at it differently. They take the $33.00 and say that $33.00 is 90% of the selling price. This results in a selling price is $36.67. The math is $33.00 divided by 90% or $33.00/.90.
8 Strategies to Increase or Maintain Profits
- Be sure to do the math. Each step of your business has a cost to it. Make sure you put a value to each.
- With vendors, suppliers and value adders, be sure you include them (and v.v.) as partners in your business. Look for consistency, predictability and support when things don’t work as expected.
- Employees need to be loyal, trusted and productive. They in turn need training, respect, a fair wage and loyalty as well.
- Know your expenses. Watch them closely. Read your financial reports at least monthly and dig into anything that doesn’t look right.
- Always look to reduce your overhead costs.
- Always look at ways to improve your revenues whether adding different channels, adding products or services or adding a distribution geography.
- Add complimentary products to your current line that support it and enhance customer attraction.
- Show gratitude towards your customers. Appreciate that they trust you and your staff. Talk with them and use them to find out how you are doing. What would they like different? What do they like? What would make their lives easier? Listen and share with your employees. They may have ideas you don’t.
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