The Profit Improvement Process Part II
Posted on March 31, 2020 by Terry Eve
Analyzing the Cost of Revenues
Proudfoot Consulting, a global consulting group, says it this way: “All work is a process and all processes can be analyzed and improved.”. They believe that operating costs contain waste in excess of 30%. Additionally, some quality consultants have identified up to an additional 30% in cost reductions through improved Quality Management techniques such as “Getting it Right the First time,” a technique attributable to the late Philip B. Crosby. That means that operating costs can be significantly reduced.
The sale of goods & services is best measured by the cost and resulting gross profit margin. How do you compare to others in your industry?
Benchmarking gross profit is critical when looking for profit improvement solutions. Evaluating if your business is in line with best practices and the resulting financial performance is a critical step in the profit improvement process.
1. What are the components that make up your cost of producing revenue?
a. Are these costs comparable with others in your industry?
b. Are your costs organized in a fashion that allows for proper measurement?
c. Do you properly calculate and use overhead burdens?
d. How can you impact these costs?
2. Are your payroll costs properly computed & associated payroll burdens properly determined and applied?
3. Can you reduce raw materials or inventory costs?
Typically every dollar saved in this area drops directly to the bottom line!
I work with clients to assure we can identify the true costs affecting their margins, and help them determine the best course of action to improve profitability. We analyze product lines and other component parts of their cost of generating revenues to properly identify opportunities to maximize profitability.