Companies repeat money-making activities every day but do they make the profit they think they’re making every time?
How can your business prove its profit?
Because if you can prove your profit then you can improve your profit!
By thinking about “Proof of Profit” not only can you make sure your core transactions are making the profit you think they should, you can increase that profit as well.
Five simple steps to proof of profit
1. Set your prices. Estimate the costs of the product or service, add on a profit margin and you have the price (which must be competitive). You also now know the profit you expect to make from the sale.
2. Perform the service or deliver the product. You want this to run like clockwork and mostly it will but from time to time you’ll face and have to overcome problems, which will add to your costs.
3. Measure the costs of the sale. Ensure you can gather together all the costs of making the sale and allocate them to the sale in question. Make sure your accounting system is robust enough to do this.
If you sold a chair, how much did the chair cost? What about delivery?
If you sold a haircut, how much did the hairdresser cost, how long did it take them, what were the other costs incurred?
Now you can ask: Did I actually make the profit I expected?
4. Whatever the answer, improve upon it if you can. Think about ways in which you can edge your price upwards and your costs down. In particular, with transactions that are repeated hundreds or thousands of times a year, see what tasks you can automate or turn into systems and procedures and delegate down your organisation so that they are carried out as cost-effectively as possible.
Also, revisit any problems you had with execution and iron them out so they don’t repeat themselves and eat into your profits. Or price them in to what you charge.
5 Repeat! Do the whole thing all over again and again and again. But each time try to do it more profitably.
If you take care of the “Proof of Profit” cycle then you will consistently make the profits you expect. You will also be delivering to a consistent standard to satisfied customers and this should help your marketing and sales efforts so you can sell more and make more money.
You create a virtuous circle that always makes money for you.
In some businesses it’s easy to see what the costs and revenues from a sale are, in others it can be a little more difficult. For instance, if you are a consultancy that is selling time then make sure you accurately record the time spent on each job and begin to think of your service delivery people as variable costs of sale rather than as fixed overheads.
“Proof of Profit” is a simple technique for helping you to make more money.
Prove profit, improve profit!
Michael – @bluedotmichael
Related links:
Gross profit officer – appoint one today
Client profitability analysis – make more money from every sale you make
