Understanding your key drivers
Many businesses offer multiple products or services and each of these carries different costs and pricing. All of us can identify the direct costs of raw materials, wages, etc., and compare that to the sales price. In accounting lingo we call this the gross margin.
Successful businesses take this a step further and determine what overheads need to be applied to items sold to identify the true profit margin on each product. Costs like rent, management salaries, and insurance should be analyzed and allocated to the products and services that a company offers. A simple example of this involves insurance. Some services can disproportionately affect insurance costs, resulting in a business sells services at a loss, once overheads are properly allocated. Understanding how these items fit together is complicated and a trained professional can assist you with this.
At Kent Accounting we have helped many clients understand what products or services truly contribute to their bottom line enabling them to maximize their financial reward.