In the first stage, your revenues are identified. All the areas in which your revenue can be improved are identified. Your customers are your first sources of revenue generation? Do you still have a good number of your old customers coming to you? You've got to spend more to get new customers (by advertising etc.) than retaining the old ones. Also old customers give you repeat business. You should keep your old customers as they are major sources of your revenue.
Your profit margins talk about the following aspects:
- The pricing of your products and services
- Time wasted by labour resources
- The increasing or decreasing trends of profit margins and the reason for that
- Find out if it's possible to raise the prices. If not, then if your costs can be lowered, to maintain a healthy profit margin for your company.
- Find out if the product costs can be bargained with the suppliers. Many times it so happens that you start off by purchasing from the suppliers at their costs and later see that with improvements in your business you are at the position to negotiate prices with your suppliers and not accept things at their prices.
- If the labour productivity can be improved to lower the labour costs involved in product and service delivery.
- Your product mix is right enough to show good profitability. The pricing of products and services combination greatly influences the profits that your business makes. A change in this can always boost up your profits.
- If your business model is of a high margintolow volume or vice versa type.
Analyze the effect of increased prices on your profit margins. Some businesses don't increase prices as they're scared of losing customers, but some do increase prices as they see potential customers in another class of society. See how increasing prices will affect your profit margins.
Price takes a backseat in preference to the quality of your products and services. Find out how much your customers value your products and services. Where do you stand in their priority scales in comparison to your competitors?
After identifying areas for improving revenue, your revenue costs are analyzed.
How much you sell your products and services for depends on the cost of your revenues and your profit margins. Here you should always try to see how you fare in comparison to your contemporaries. Compare your business practices with those of your competitors and assess how you fare. Compare your total profits with those of your competitors.
You need to assess the contributory factors that add up to the cost of your revenue. You can do this by answering some questions
- Are your revenue costs comparable to your competitors? Are they much more than the costs of your competitors?
- Have you organized your costs in an easily measurable manner?
- Can you reliably calculate your revenue overheads?
- Is there any way in which you can influence these costs?
Payroll costs are the next major revenue costs that you should focus on. They should be accurately summed up and the payroll overheads should be accurately identified.
The revenue costs area is a very important one as far as your money saving is concerned and whatever money you are able to save here makes a significant contribution to your business gains.
Internal controls play a very crucial role in controlling and administering the variable costs. There should be proper set of controls in place to check whether each rupee of the organization spends is in conformity to its policies & procedures. Strong controls help the management assess the likely areas of frauds.
After optimizing your cost of revenue and improving it, you should then concentrate on the general, marketing and administrative costs of your business.
A look into your marketing, administrative and general expenses in detail can also show areas in which profits can be made. You should look into certain areas like the utilities on which you are spending the most. Some of these are:
Usage of telephones and cellular phones can cost you a lot. Next time, when it's time for renewing your contracts, just opt for that service provider who is going to give you the best services at the least cost. Even if you stick to your current service provider, find out if they are offering any low cost or free services. Also if you are opting for more than one scheme from a service provider, check that features are not repeated. That will only introduce redundancy. All these considerations will significantly reduce your overall expenses
Have you opted for only those schemes you are comfortable paying or are your insurance limits not established properly? You get credit benefits for collaborating with your carrier on loss prevention programs. You get cost effective credits for some programs like the worker's wages program for which you've got to apply. Your insurance coverage should be updated with any modifications that your business has undergone, as this will also help in reducing your insurance costs.
Cost reduction on expenditures like printing should be considered. The sales commissions that you allot for your sales men should be properly controlled. Sales commissions significantly add up to the cost and they cannot be avoided as they are they are major motivating factors for boosting sales.
This includes the number of employees in your organization, and how you pay them. We help the organization place effective controls that would regulate the spending of the organization. The first thing in this regard is to find out if you have the correct number of people employed, no more, no less. Too many employees results in unnecessary expenditures and if you have too less you'll not be gaining either. You'll be probably spending more on their overtime payment.
We at CFO Services would provide you with a proper mix of working capital & its funding, term loan, Export Packers Credit & Buyer's credit & can help you to finance your cost of capital. The cost of each source reflects the risk of the assets the company invests in. Hint: A company that invests in assets having little risk in producing income will be able to bear lower costs of financing than a company that invests in assets having a higher risk of producing income.
If you haven't, just assess if you have a scarcity or surplus of resources. As already discussed this impacts the costs. You should also be well versed with the hourly wages law. Also you should consider whether hiring people as independent contractors or employees is going to be more beneficial for you. Compare the wages that you pay to what your contemporaries pay. The perks that you give to your employees should be attractive but cost effective for you. At the same time, your employee expenditure should be comparable to those of your competitors.
Other expenditures that you can avoid are high interest costs, payment discounts not availed and late fee. Though small, all these contribute significantly to your expenditures. By identifying these you can always slash excess expenditures and increase your profit margins.
Making a budget on your revenue cost variance is your next step. You'll be able to track the deviations and work upon them.Identify the profit initiators for your business. These will help in enhancing the profits of your business considerably.
CFO Services has an experience of 25 years in optimizing profits for various companies. The profit strategies that we devise survive for long terms. You almost never fail to experience repeat profits. You can always contact us for the best profit optimization solutions being practiced in the industry.