Find the Margin!
We have been assisting one of our e-commerce clients with some margin analysis of various product lines only to discover that half of their products were generating substantial margins and the other half were being sold at a loss!
The key message here: Find your margin and cut everything else.
If you don’t already have a good grasp on product or service profitability levels, then you need to spend some time getting to that point. The whole concept of “flying blind” or “driving without a speedometer” gets amplified when you drill down to a specific product or service.
You may think the core of your business is Product X and your efforts and attention are centered around that. All the while, Product Y might be generating your best margins and is getting completely neglected from a delivery or growth standpoint!
Know your margins…
I’ve written before on the importance of new products and services. This is all within the context of what you do best, your core offering or focus area. It’s important to have your primary revenue and cash flow generator but at the same time not be complacent.
New product launches are a form of tinkering and experimenting to find the next major contributor. If a new launch is working, add resources to it… If it isn’t, cut it quickly and revert back to your core only to start the next experiment.
Now we have the basic framework…
- Have your well-defined core products / services that are your bread and butter (i.e. “find your margin”).
- Experiment with new products / services to find the next major contributor.
- Continually evaluate your portfolio of offerings to ensure proper margins — build on those that are working and cut those that aren’t.
Evaluate your product portfolio…
That third step can trip up business owners. You might think one of your largest revenue contributors is good for your business when really it is consuming resources and cash. Do the math! It doesn’t need to be perfect. You need a general understanding that you’re in positive margin territory — make sure the juice is worth the squeeze.
Cutting unprofitable lines…
The very last step can often be the most difficult — cutting what isn’t working. I have yet to meet a business owner actively seeking to turn away revenue dollars. Resist the temptation. The losses add up in more than just a financial sense. Time and attention is precious. The most troublesome aspects of your business will almost always feel chaotic and distracting while the best parts seem to flow naturally.
Don’t do it alone…
Get some outside perspective!
If you think you have a margin problem at the product or service level, seek help to get a fresh look at your business. An outside perspective with a questioning eye can be a wonderful thing for any company. A true advisor asks lots of questions to probe your business for improvement.
