Growing your business? What you should know about your cost of sales.

Guest post from Fiona McKenzie at Blue Note Solutions Ltd – Part 2 of ‘Growing your business? What you need to know about your sales’

You probably follow your sales figures closely and of course you realise that sales must be priced so as to cover all your costs of doing business. However it is worth checking if you have priced different products or services so as to cover all costs related to those sales. Some costs which may be overlooked are:-

  • Costs related to selling perishable or delicate goods.

The element of wastage due to damage or decay should be factored into prices, so if on average 10 percent of such items are damaged you should consider whether your unit prices need to compensate.

  •  Sales/marketing costs related to a product or service.

Say a service takes 3 hours to discuss requirements and prepare a quote then only 1 in 3 customers buy that service. You need to include this cost when deciding whether that service is a profitable item to offer.

  •  Costs related to specific customers.

Some customers are more demanding and therefore costly to service. Service X may cost an average of 10 hours labour but 12 hours for customer Y. Or customer Y may demand a 60 day credit period. Are these costs reflected in the price? Or might you be more profitable if you sacked your ‘demanding’ client?

Failure to consider all the costs related to sales may not always turn a profit into a loss but it could convert a good profit into a much smaller one. The above are some examples of extra costs, others may be travel time or delivery costs. What (overlooked) costs has your particular business encountered?

About the author: Fiona McKenzie is the founder of Blue Note Solutions Ltd based in Oxford. A Finance Director with many years of commercial experience, she now helps SMEs gain clarity and control of their financial performance. She offers a complimentary Profit Improvement Review to SMEs based around Oxford and the Thames Valley.

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