Margins, margins, margins!
A small change can make a massive difference to profits and cashflow.
And that small change could be up or down which means profits and cashflow will go up or down.
So, keeping on top of margins and trying to push them up is paramount to having a great business.
OK, so for those of us who just want to get on and “sell, sell, sell” – what do we need to know?
It’s pretty straight forward for the products we sell – if I buy for £50 I make sure I sell for at least £80.
And if I can sell for £90 then my profit margin has increased by £10 which is a whopping 33% and I’ve got more money in the bank from each sale I make.
But when I’m selling services, doing projects for clients, it feels like a whole different ball game.
It’s much the same process.
You need to estimate the costs of running the project – likely to include the materials, goods and expertise you buy from third parties.
And don’t forget how how much time you and your team will spend on the project, adding value to it. Having a tariff of charge-out rates for staff is a good idea.
Allow room in your fee for a contingency so you can charge more to cover any significant unexpected items and scope-creep.
I like what you say about adding value.
Some of the work we do can be incredibly valuable to the client for different reasons and because of the particular circumstances.
As well as “the margin that the spreadsheet produces” I also need to think about added value each time.
And – as ever, all roads lead back to good bookkeeping because if we don’t measure the costs for each project accurately we won’t ever know the margin we made.
They’re not wrong!
Margins are the bedrock of profitability and cashflow. Small changes can make a massive difference to both.
We do a lot of work with businesses to help them establish and measure their margins. We also help them to prove that they are actually making the profits they think they are – Proof of Profit.
If you think we could help you and your business – give us a call on 020 7125 0270 or email us at info@bluedotconsulting.co.uk
Michael – @bluedotmichael
Related links:
Pea & Elle and the importance of good bookkeeping
