Extraordinary Business: Step 4 of 7 in Seven Steps to Thrive in a Down Economy: Re-evaluate Your Products & Services

Step Four in the series of Seven Steps to Thrive In a Down Economy: Re-evaluate Your Products & Services

In the last newsletter we covered Step Three - Upgrade Your Sales Process & Sales Skills. In that article, I asked you to take a close look at each step of your sales process to make sure it was working at optimum levels and to make changes where necessary. I also encouraged you to continuously improve your own sales skills as well as those on your team through books and seminars. More than ever before, it's critical that every member of the team understand the importance of sales.

Now it's time to make sure the products and services you're offering are truly profitable.

When was the last time you performed a profit analysis on each of your product lines? If it's been awhile, it's time to do it again. Prices from your suppliers may have gone up and if you haven't adjusted your prices accordingly, you may be losing money. I can understand that many of you are nervous about raising prices right now, but without making sure you are profitable on every item you sell, you may be at serious risk of cash flow issues.

To review your gross profit percentage, calculate the following: take the amount of what you sell your product for, and subtract the amount that it costs you to create the product. Next, divide that profit dollar amount by what you sell the product for. That answer is your percentage of gross profit. For example, you're an auto repair shop and know that parts and labor to repair a transmission currently cost $225; while you charge your customer $500 for the repair. To figure your gross profit dollars, first subtract your cost ($225) from your sale price ($500.) Your gross profit is $275. To get your gross profit percentage, divide your profit ($275) by your sale price ($500) and you'll find in this example, that your gross profit is 55%.

Now ask yourself is that a standard gross profit percentage in my industry? Is it the same gross profit I was making last year? Last month? After asking those questions, you'll have a much better idea about the profits you're currently making and what action you should take.

For instance, if at all possible, I highly recommend that you immediately increase your prices on those items that are returning your lowest gross profits. I also strongly suggest that, moving forward, you put a system in place to manage your profit analysis on a more regular basis.

Another action item may be to focus your efforts on promoting those items that have the greatest percentage of profit. Getting a return on your marketing and sales efforts will be much easier when they are focused on your most profitable items. Have you ever wondered why restaurants have "menu specials" on a regular basis? Many times those items are their most profitable and therefore make the most sense to promote.

After you're sure that what you're currently selling is profitable it's time to investigate what else you could be selling to your same customers. Are there additional product lines that would be a natural "add-on" to what you're already selling? If you're selling the hamburger, you might as well sell the buns, cheese, ketchup, mustard and onions... you get the point. Of course, do your research and don't go crazy ordering tons of merchandise that will be tied up in inventory, but if you do think something is a good fit, give it a test.

Bottom Line: Profits are crucial in this economy so it's more important than ever before to make sure every product and service you offer is truly making you the most profit it can.

The next step in our series - Step Five: Re-evaluate Your Customer Experience (coming in two weeks!)

To Your Success,

Dawn