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Dumping unprofitable products to build a stronger business

If you want to make your company more resilient, you need to keep good accounts. Doing so enables you to look at your business in detail, and work out where you are making money and where you might be losing it.

Identifying your profitable products

Every business has products and services that make them more money than others do. For most firms, roughly 80% of their profit comes from 20% of the products that they sell.

This means that there are a lot of products and services that contribute little to your firm’s profitability. In fact, some of them could be wiping out your profit because you are actually selling them at a loss.

To avoid this, you need to run profit and loss reports on a regular basis. Looking at each item in detail allows you to pick out those products that you should be promoting more, and those you should consider dropping. You can only produce meaningful, and in depth, profit and loss reports if you keep good accounts, and keep your books up to date.

Is your range too big?

In an effort to appeal to as many customers as possible, many firms offer a very long list of products and services. This is especially true of the retail and manufacturing sectors.

Many businesses in these industries produce or sell multiple versions of the same product or service. Doing so creates complexity and cost for minimal or no return.

It means holding more raw materials and requires you to run a bigger warehouse. That means higher overheads and more money tied up in inventory, neither of which is good for cash flow.

Keeping your range fresh

Using your profit and loss reports to review the lines you sell, on a regular basis, helps to prevent you from making this classic business mistake. It ensures that you stay on top of things, and enables you to spot those products and services where demand is falling away, and do so at an early stage. You can then make the necessary changes, and keep your business profitable.

Understanding your customers better

To be successful, you need to know what makes your customers tick. Regularly looking at what sells and what doesn’t will keep you ahead of the curve. You will understand better what modern consumers want, and be in a position to provide it.

Regularly updating your inventory and keeping things fresh is key to long-term success. Keeping accurate accounts and analysing that data is the best way to ensure your business continues to evolve and grow.

Posted by Louise
December 23, 2015

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