Barrow Boy's Guide to Profit

Barrow Boy’s Guide to Profit Business Finance Training

Barrow Boy’s Guide to Profit Business Finance Training Bazzer’s

Business Finance Training The recession has pushed many businesses in to bankruptcy, including some famous high street names. But come boom or bust, businesses like Bazzer’s fruit and veg stall always do well. How do they do it?

[object Object],[object Object],[object Object],[object Object],[object Object],It’s far too important to leave to my accountant

[object Object],[object Object],[object Object],[object Object],[object Object],Strong profits are the key to growing your business

[object Object],[object Object],But not all costs work in the same way! Revenue minus Costs = PROFIT

[object Object],[object Object],[object Object],[object Object],I make a £5 margin on each box of fruit I sell

[object Object],[object Object],[object Object],[object Object],[object Object],I pay £40 each day to rent the market stall pitch

[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],So the stall is paid for when I’ve sold 8 boxes of fruit Accountants call this the break-even point

[object Object],[object Object],[object Object],[object Object],[object Object],I always know what the break-even point is for my stall

[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

[object Object],[object Object],[object Object],[object Object],[object Object],Variable cost Fixed cost

[object Object],[object Object],Sales are very important But gross margin is the REAL income of your business

[object Object],[object Object],[object Object],[object Object],[object Object]

[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],Which means that once I’ve sold 8 boxes of fruit I make £5 clear profit on every additional box of fruit I sell

Business Finance Training The gross margin and break-even idea seems obvious but not everybody gets it. Take my mate Frank, for example. He has a nice little wholesale business selling women’s clothes. Sales and profits at Frank’s Fashions have been going down over the last year or so - Frank got in to a bit of a panic thinking how to improve things. He started talking about reducing the price of his best selling items so he could get the sales level back up. Luckily I managed to talk him out of it!

[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],This is one of Frank’s best selling items – it made £25k margin last year Ladies cashmere overcoat:

[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],Before After £ 90.00 - 10% Frank was going to reduce the selling price by 10% Ladies cashmere overcoat:

[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],Before After £ 90.00 - 10% But that would reduce the gross margin on each coat by 40% !! And remember – gross margin is the REAL income of the business Ladies cashmere overcoat: £ 75.00 £ 15.00 - 40 %

[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],Before After £ 90.00 - 10% Ladies cashmere overcoat: £ 75.00 £ 15.00 - 40 % 1,200 + 20% Frank thought the price reduction would increase sales units by 20%

[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],Before After £ 90.00 - 10% Ladies cashmere overcoat: £ 75.00 £ 15.00 - 40 % 1,200 + 20% But margin from sales would still be 28% less than before the price cut £18,000 - 28 %

[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],Before After £ 90.00 - 10% Ladies cashmere overcoat: £ 75.00 £ 15.00 - 40% 1,667 + 67% £25,005 Frank would have to sell 1,667 coats to make the same margin as before That’s a 67% increase in sales – it’s never going to happen!

[object Object],[object Object],Frank could try advertising as a way to increase sales volume

[object Object],[object Object],[object Object],Bet you’re thinking that if we increase the price the sales will drop That doesn’t necessarily mean Frank will be worse off – look at this

[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],Before After £110.00 + 10% Ladies cashmere overcoat: £ 75.00 £ 35.00 + 40 % Increasing the selling price by 10% increases gross margin by 40%

[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],Before After £110.00 + 10% Ladies cashmere overcoat: £ 75.00 £ 35.00 + 40% 700 - 30% Even if sales fell by 30% Frank would be hardly worse off in margin terms £24,500

[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],Frank could replace that fancy Jaguar sports car for a start!

[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],So make sure you check gross margin before you change your prices!

Look out for my Barrow Boy’s Guide to Cashflow Business Finance Training

Business Finance Training the cost effective way to improve business results Paul Lower FCMA

Barrow Boy's Guide to Profit

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