Most companies sell a variety of products and services. The danger in being a “mini-conglomerate” is that you can very easily lose track of the exact costs of producing a product or service and selling it in a competitive market. It may happen that many of the products or services that you are selling today are not really yielding you the kind of profit you think they are. In fact, you could be losing money on your best-selling items and not even know it. Many companies think they know which product is their best seller and consequently which product they should concentrate the bulk of their resources behind. Before you make any assumptions, however, you need to make sure you are making a profit on that product and that you are using your resources effectively.
One of the most important decisions you can make is to isolate each product or service you sell and then accurately determine all the costs involved in the production and sale of that product. Allocate a portion of the rent, the staff and administrative costs, the utilities and telephone bills, the advertising and promotion, and a part of every variable cost that you can identify.
Determine exactly how many hours of executive time it takes to sell and deliver this product. How many returns do you receive? What is your average gross and net profit per sale? When you itemize every single cost attached to a product or service, you will often find out that some of your best-selling products or services are not yielding you very much profit at all. In fact, many companies find out that they are selling a product or service at a loss and at high volume.
If you have an entrepreneurial mentality, you are probably not very interested in the accounting and bookkeeping functions necessary to determine the exact costs or expenses associated with a particular product or service. In that case, hire an accountant, give her the necessary instructions with regard to allocating direct costs, indirect costs, fixed costs, variable costs, and semi-variable costs to your top 20 percent of products or services. Have her break out the costs and revenues of each product down to the penny.
You may find that a product that you have been taking for granted is your biggest moneymaker. Meanwhile, a product that you have been selling in large quantities hardly makes you any profit at all. Whatever the case may be, it is important that you find out for yourself so that you can concentrate your energies and resources on selling more of the products and services that yield you the highest net profits from everything you do.