Understanding What Drives Profits
Do you know your most profitable goods or services you sell? Not just gross profit margin percentage, but real dollars going into the bank. Many times, products can have a great profit margin percentage, but the item or service doesn’t drive much to your bank account.
Understanding what drives profits, as well as profit margins, should be the basis of your game plan. Those products and services that drive sales and drive profits are the areas you focus on. How do you know what those are? Use these questions as a guide:
- What are the profit margins and profit dollars of every product or service sold?
- Which items drive the greatest profits for the available effort?
- What is the impact of each of your products or services to the bottom line?
Focusing on Profitability
If you don’t know your margins, how do you know where to focus your efforts? Many business owners look at total dollars in the checking account instead of profitability. There are items that have high volume, but are they profitable? If they need significant labor does the product make sense to keep selling?
Once you’ve determined where the profit in your business comes from — share that information with your sales team! A lot of times your sales staff will sell the easiest thing to sell, but that may not be the most profitable thing to sell! Determine the items that have the greatest positive impact on the future of your business, and then laser-focus your team on selling those products and services.
Action Step
So—what products/services have the greatest impact on the future of your business?