Midlands Business Profiles
Analyzing your fixed and variable costs
Analyzing your fixed and variable costs - a powerful tool for understanding profitability.
The market place is a dynamic, constantly moving target in terms of supply and demand. Most businesses have a cycle throughout the year or over several years. The prosperous times during the "up" cycles are easy - even a novice can make money. It is the tough times, when the market is "flat" that separates those who truly know their business from those who don't. Owners and managers need a proactive strategy to understand in advance how much profit they should expect.
Many business owners don't really know how much product or service they have to sell in order to stay viable because they are too wrapped up in the day-to-day operation of their business. They just hope an accountant will tell them at the end of the quarter or year whether or not they made money. Why wait until the end of the game to see if you are winning or losing? A winning coach, leader, and entrepreneur need to know the score now, while the game is being played.
There is a number called the Breakeven Point for a business where they make zero profit, but still pay all their bills, including reasonable salaries. Everything balances from there. Every business owner wants to make money above that level. That is where your profit is, above the Breakeven Point. The Breakeven Point consists of two very, very important pieces of information: fixed (overhead) and variable costs. The application of fixed costs and a clear understanding of variable costs are what distinguish the winners from the losers in the game of business.
Let's say you operate a computer consulting service. In the final analysis, your product is man-hours. That is what you sell. It may be wrapped in a package you market as computer services, but you sell and get paid for man-hours sold. Everything must be applied to a single man-hour. Your salary, electricity, rent, gas, automobiles, etc…it all goes back to a single man-hour sold. Period! In order to stay profitable, you must know exactly how much you have to charge for that man-hour.
The same thought process applies no matter your product or service: retail shops, fabrication shops, construction services, manufacturers, professional services - all need to know how much they have to charge per item, per man-hour, per box of widgets (or whatever they sell or provide) in order to stay healthy and profitable.
Biz Council provides detailed information without having the extra burden of hiring more staff. We can provide you with the answers you need during the game, so you don't have to wait until the dust settles to determine the score! We help you determine if your current approach will meet your needs. Biz Council offers creative strategies to grow, market and expand your business.
When everyone else is resting on their laurels, your business will be prepared the future!
For more information:
info@bizcouncil.com
866.303.9328
