Are You Selling Blind?
Hope and Hope wrote the book “Transforming the Bottom Line” published by Harvard Business School Press. My copy is from 1995. If you haven’t read it, get a copy and dig in. This isn’t new material. Yet, its concepts are strategic and critical for any executive on your Small and Medium Business (SMB) team.
Do you know your sales mix off the top of your head? You should. Period. I don’t mean, “We sell product X, Y, and Z”. I mean “Product X is 45% of our mix. Y is 32%. Z is 20%. The other 3% is split between new product tests or products we are phasing out.” And if you think that’s detailed, it’s only part of the right answer. The other half is knowing what costs are directly attributed to each product. These are not costs spread across multiple products by an arbitrary proportion. Take a utility bill for lighting as an example. It should not be split 33%, 33%, 33% or even 45%, 32%, 20% as in the example above. This bill is probably a fixed cost that’s not, and should not be, directly attributed to any product. You’d have to pay this bill regardless of producing one or 22 products. And unless your production floor is completely segmented from all other workers and staff, you’ll have a difficult time calculating this correctly. Your accounting firm should understand this concept. If your CPA doesn’t or persuades you that this is unnecessary, find a new firm immediately. Terms and concepts like Contributed Income Statement, Activity Based Costing (ABC), and Target Pricing are not unnecessary. They show you your lifeblood. Learn how to use them.
Now that you have a correct, attributed Gross Margin for each product, focus your sales team on the most profitable products. At the same time, eliminate non-performing assets from your sales mix and inventory. These steps will propel your business forward like rocket fuel.
Do you need help here? Let Kenesco put a CFO or Business Advisor on board with your executive team for a few hours a month. It’s a cost effective option that will pay off immediately. Contact Kenesco today! http://kenesco.com
David Knea
CEO, Kenesco
+1-877-218-1879