Most companies sell a variety of products and services. The
danger in being a “mini-conglomerate” is that you can very easily
lose track of the exact costs of producing a product or service
and selling it in a competitive market. It may happen that
many of the products or services that you are selling today are
not really yielding you the kind of profit you think they are.
In act, you could be losing money on your best-selling items and
not even know it. Many companies think they know which
product is their best-seller and consequently which product
they should concentrate the bulk of their resources behind.
Before you make any assumptions, however, you need to make
sure you are making a profit on that product and that you are
using your resources effectively.
One of the most important decisions you can make is to isolate
each product or service you sell and then accurately determine
all the costs involved in the production and sale of that
product. Allocate a portion of the rent, the staff and administrative
costs, the utilities and telephone bills, the advertising and
promotion, and a part of every variable cost that you can identify.
Determine exactly how many hours of executive time it
takes to sell and deliver this product. How many returns do
you receive? What is your average gross and net profit per sale?
When you itemize every single cost attached to a product or
service, you will often find out that some of your best-selling
products or services are not yielding you very much profit at
all. In fact, many companies find out that they are selling a
product or service at a loss and at high volume.
