Figure out your sales margin

What happens when you have a large order for your business? Does one large order require you to run with a full staff and does it take them away from all of their other job responsibilities? How about smaller orders? Do they take up some of your employee's time but allow your employees to also focus on their other job responsibilities?

There are some products you sell that generate a larger profit for your company and they are going to help you build a sustainable business. As you know which products sell and which ones don't, you will be able to more time on the products that actually drive up revenue for your company.

As you are trying to figure out your sales margin, you need to start by determining what the profitability is for a particular product or service. You will need to understand how much must money you are making by subtracting the labor costs and material costs to produce the product. Once you have your gross margin calculated, you then need to add in the other costs your company has such as your rent, machinery and equipment costs, marketing expenses, etc. When you have all of the costs properly calculated, you will be able to have a stronger picture as to what your sales margin actually is.

Having your costs in hand allows you to understand where to go next. Since the ultimate goal is to save the company money and generate a higher revenue stream, you will need to focus on the production costs. If you raise prices and it doesn't generate the profits and you reduce production costs and you still don't save money, you should consider discontinuing the product. The product may not be selling and it really isn't bringing in the money you need in order to sustain your business. Although you do want to have a nice offering of products for your customers to choose from, it's not exactly easy to carry products that are costing your money as they sit on your shelves and suck up your revenue stream.

If you really don't want to cut the product from your catalog, you need to look for alternative solutions to warrant keeping the product. Try negotiating price breaks from your lenders pertaining to your raw goods and other costs. As you can reduce some of the initial cost, you can save money down the road and keeping the product may be an option that is feasible.

You won't be able to calculate your profit margin accurately if you aren't focusing on gathering correct data. You need to know what your true cost inputs are in order to find a way to justify keeping products and to figure out which products need more attention from your marketing department.

Meet with the various departments within the company to come up with a list of the products, their impact on the company, and the value they provide. Each department should be in charge of calculating the profit margin for those products. Then you can sit down together and talk about reducing the manufacturing cost or increasing the price of the product.

Always think about the future when you are trying to understand your sales margin. Your customers will be impacted no matter what the decision may be so it's important to see how they will be impacted if you decide to discontinue a product. Market research studies can help you gather the information you need from your customers to understand if products should stay in your catalog or not. The low-volume products may have special meanings to you, but if they aren't brining in revenue, they aren't worth keeping.