One of the key elements of running a successful business is to determine if your product or service is profitable, and, if so, how profitable? Well, lucky for you guys, we have plenty of tips and ideas that will help you to work this out and make the right decisions for your business moving forward. Check out our advice for figuring out if your product or service is profitable right now!
Understand your products
The first thing that we’re going to suggest when it comes to determining the value of a particular product or service is to make sure you understand that product or service. Your business might offer a lot of products and services to customers, some of which you may not even know about! Make sure you list them and understand what they are, so that you can work out the cost or securing them, and how much you’ll make in sales.
Figure out gross profits for each product
Another thing you need to look at is the gross profits for each product, because this is the important factor. The gross profit is worked out by adding up the product’s sales, and then subtracting the cost of good sold. This is one of the most basic ways of working out profit margins, but there are other considerations too!
Find out the gross margin on your products and services
A lot of people overlook gross margin, but in our opinion, this is one of the key elements. Simply put, gross margin gives you an idea of how efficiently you’re running your business. Gross profit divided by sales and multiplied by 100 = gross margin, and we feel this represents the best way to sort and organize your products. A consistent and stable gross margin is a sign that your business is in good health, and that your products and services are selling well. Beware a fluctuating gross margin, as this could well be a sign you need to reassess the way your company is doing things!
Know thy customer!
We urge you to make sure you understand and know your customer as much as possible. The secret to profit in the business world is to understand who you are marketing to. Your customers are going to be the ones buying your products and services, so you need to know what their buying trends are, and what they look for in a product or service. The better you know your customer the better you will be able to tailor your products and services to suit their needs.
Profitability is awesome but it isn’t everything!
Here we just wanted to mention that profitability isn’t always the only consideration of whether to keep or drop a product or service from your offerings. There are many other factors that can play a role in this important decision. For example, this product or service could be a part of a bundle or could be an accessory to other products or services you offer. This could be a part of a bigger picture strategy to keep your customers happy and coming back. Always look at both the numbers and the reasoning before making your decision.
Still confused on how to get your metrics to work for you? Get in touch with us and we will be happy to help you sort it all out.