Dublin Accountant Tips To Boost Your Profits
Without getting boring and technical about profits
, losses and balance sheets, let's just look at the simple reality of your business's bottom line. There are only four ways to add to it and so boost your profits.
And no matter how hard people might try to make it more complicated than it is and sell you expensive consultancy and advice, it all really comes down to just four fundamentals:
1. Sell more to your existing customers and clients.
2. Get more customers and clients to sell to.
3. Sell at a higher price.
4. Lower your costs.
This is all very straightforward and frankly obvious if you think it through.
But, what does come as a surprise is how virtually all business owners concentrate on the first two - selling more of their services and products, and bringing in new business - when the second two are not only easier, but actually far more profitable, too.
Let me explain.
Bringing in more customers and clients and then selling them your products and services, or even selling more products and services to your existing customers and clients clearly has a cost attached to it: your cost of sales, your marketing costs, your other variable costs, and of course the cost of the supplying the goods or providing the services themselves.
It's reasonable to expect about a 35% margin after you've crunched all the numbers. It does vary, but that's a good approximate figure.
But selling at a higher price is as easy as simply raising your prices. You can do it just like that... and it won't cost you a penny.
Yes, I know you might worry you'll lose a load of business... but you really won't. I've advised many clients to do just this many times in the past and, without a single exception, their customers and clients simply don't notice even in the middle of the Recession The reason price isn't usually an issue is people are more interested in the value you offer, not the price you ask.
And even if they do notice, and even if you do lose some business... it's really not a problem. I won't go into the maths now (perhaps in a later article, along with the justification for exactly why I say you won't lose business), but working on a 35% margin, if you increase your prices by just 10% your profit-increase is a staggering 37%.
Or, looking at it another way, you can afford to lose about 34% of your sales volume and still make the same amount of money (that means you're finishing work at Thursday lunchtime instead of Friday afternoon for the exactly same pay!).
On the other hand, a price cut of 10% on a 35% margin slashes your profits almost in half, meaning you've got to work twice as hard just to stay exactly where you are. And many businesses simply couldn't even handle a doubling of their sales volume. Worse yet, your competitors then also cut their prices meaning you're back exactly where you started relative to them, only everyone's working harder and getting more fed up with it all.
Now, cutting your costs: on a 35% margin, to make 35 Euro in profits, you've got to sell 135 Euro worth of products and services. That all takes time and effort (and depending on your business causes wear and tear on capital plant, etc.).
But if you can save that 35 Euro by cutting costs, which is easy to do because most businesses don't actually think about their expenses in this way and so leave gaping holes, then you've achieved exactly the same result only without all the hassle of having to sell more of your products and services.
So now do you think accounting is just boring number crunching?
No, I thought not.
by: Dublin Accountant
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