Customers come in daily, revenue is growing and your business is thriving. Why, at the end of the month, are you not able to show a profit? Do you need greater volume? Or is something else going on?
I once owned a Business Centre offering more than 20 individual services.
Some services were sold each day while others were infrequent.
One offering was postal services which included the sale of postage stamps. This was a convenience offering also available at any post office.
Within my industry the sale of postage stamps typically resulted in little to no profit but considered to be a necessary offering. It was seen as a way to increase traffic flow and demand for the more profitable services that were offered.
After evaluating this area of business for two years I concluded that the sale of postage stamps was too costly. Transactions were frequent, of low value and low margin.
After factoring in overhead and staffing, I concluded it was not possible to profit from offering postage stamps.
More importantly, I noted that virtually all postage customers had no interest in anything else offered in the store. I discontinued the sale of postage stamps. The result was reduced staffing, fewer customers, improved cash flow, a higher average sale and improved overall profitability.
My decision to discontinue the sale of postage stamps would not have been possible without the ability to track sales and expenses by profit centre.
Many businesses operate with an inadequate understanding of how their business makes money. They lack the management systems and controls to evaluate the profitability of their multiple offerings, isolate those that result in the most profit and focus more acutely on how to build those more profitable areas of the business.
Investing in good management control systems is the foundation upon which successful businesses are built.
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