Patti’s business appeared to be just breaking even, year after year, even though sales were up and expenses remained the same.
How could this be?
We dug deeper into each product Patti offered…. and this is what we found.
Patti offered 9 products
Products 1 – 4 generated a lot of profit.
Products 5-7 broke even
Products 8 and 9 were loss making!
When we looked at her company as a whole it seemed to be a company that broke even.
After looking at the pricing for each product we realized that products 8 and 9 were losing ALL of the profit generated from products 1-4.
The solution?
We eliminated all of the loss-making products.
We eliminated 2 of the break even products.
We raised the prices on the other 2 break-even products.
And we kept the profitable products.
Voila! Patti’s business was highly profitable! And by eliminating 4 of the 9 products we were also able to reduce Patti’s workload!
Carrie’s company had an overall profit margin of 6%.
My goal with every client is to maintain a profit margin of 40%. We had a long way to go.
Again after looking at each division of the company we found that some divisions had a 20% profit margin while others were loss making.
The fix? We set a plan in place to make each division profitable. (We already had a model from the profitable divisions to build on.)
Know your profit margin on every product and service line:
- Increase profits
- Decrease workload
- Create a profitability model you can duplicate