Most businesses today are facing external pressures like never before. The slow economy, rising fuel prices, competitive forces in the local market, global forces through the internet, it all is leading to one thing…lower gross margins on whatever it is you do. For the business to sustain in the future, it is vitally important to periodically reset the gross profit target and focus less on total revenue. Gross revenue is never the proper indicator for profitability.
Businesses usually have at least 2-3 different products or services that they sell and these usually have different profit margins. The resulting blend of sales margin is what gives you your operating profit BEFORE you take out expenses. With margins getting tight, it may be time to re-engineer your desired mix of revenue. Some questions to ask:
- What are the components of my revenue mix?
- Which of these has the most profit potential?
- Which of these sources of revenue is the most price sensitive?
- Can I find another supplier for this product?
- Can I figure out another way to deliver the product more profitably?
- Can I bundle this price sensitive product with another product or service?
- What can I do to improve turnover rate for the inventory?
- Should I do anything to improve the marketing of my products / services?
- How do I currently get customer feedback – those that don’t buy from me, why not?
- Consider a different commission / bonus structure that rewards the employees when the business is successful not just when on individual is successful
A sustainable business model is critical to positioning your enterprise to produce a consistent revenue stream providing for your lifestyle and the families of your employees. Everyday outside forces are at work deteriorating your model…don’t forget to work on it your family is counting on you!