How do you know if you are making a profit?
Do you really know how much profit you make on each and every sale? Do you even know if you make a profit? How do you know if you are making a profit? Many businesses are unaware of the exact profit they make as they don’t monitor closely enough the different elements that go to make up the sale. Costings are generally incomplete or outdated. Price lists are not regularly reviewed. Sales volumes and sales mixes change and become out of step with the costing model.
A simple check lies within your management accounts and is yet another reason why you must keep these up to date. Monitoring your gross profit percentage will identify any negative trends before it’s too late.
If you don’t have a tried and tested costing system in place for your goods and services then it is vital that one is created.
With so many variables influencing your costings they should be regularly reviewed, at least annually and after key economic changes.
Regularly review your own price lists and match to your costings and closely monitor gross profit yields.