Five and Dime

Pennies add up, if you can collect enough of them. The “five and dime” was today’s “dollar store.”  When I was growing up, it was a favorite past-time to spend a few hours hunting for the perfect way to spend my allowance. Today, I am using “five and dime” as a way to challenge your thinking about how to improve what you get out of your efforts.

Let’s start with a hypothetical company doing “100” of top line revenue. I’m leaving off the thousands or millions for ease of discussion. Their cost of goods sold is “70.” The labor and administration to complete the sale is “20.” That leaves them with a profit of “10.”

Revenue:	100
Minus   Cost of goods	70
Minus   Labor and admin	20
Profit	10

Let’s say that circumstances are such that they are able to raise prices modestly by “5,” bringing the top line revenue to “105.” Everything else remains the same, except for the profits. They go up by 50% because all of the price increase falls right to the bottom line.

Revenue:	105
Minus   Cost of goods	70
Minus   Labor and admin	20
Profit	15

Suppose that by being able to drop some unprofitable items and/or renegotiate with suppliers that 10% can be pulled out of Cost of Goods. My Cost of Goods now drops 7 points (10% of 70) to 63. What’s the impact on profits?

Revenue:	105
Minus   Cost of goods	63
Minus   Labor and admin	20
Profit	22

Is this doable? Yes, if you are diligent and apply yourself.  Sometimes there are outside factors that may get in the way such as pricing from competition that limits your ability to adjust prices. In that case, maybe it’s sales volume that you can impact. You might be in a situation where you cannot reduce your cost of goods but you can control some administrative costs.  Getting to your desired outcome takes constant monitoring. Try using Margin Bridge as a tool from our Profit Picture® arsenal of measurement visuals to help business owners like you.

Margin Bridge is a tool we have developed inside Profit Picture®. It’s the all-important answer to “why and what” that allows you to know the specifics so you can take meaningful action toward your goals.

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