Business owners are constantly looking for ways to increase revenue, particularly when times are tough and survival is uncertain. As providers of virtual CFO services for women business owners, we start with a detailed analysis of the revenue and profit generated by each product or service offered.
Once you know how much revenue and profit is generated by each item, you can make strategic decisions about which products and services deserve the investment of more time, money and resources.
Why Virtual CFOs Say “Numbers Matter!”
As the CEO of your business, you likely have a gut feel for which products and/or services are your best-sellers. But any full-time, interim or virtual Chief Financial Officer worth her salt will tell you that it’s essential to find and analyze the actual numbers. You will likely be surprised by the results.
To start, list all of your company’s products and services. Then add the following details for each item:
- The number of units sold in the past 12 months
- The price point per item
- The cost of goods sold (CGS) per item
- The total revenue generated by that item during this 12-month period
- The total CGS for this item during this 12-month period
- The gross profit (i.e., the total revenue minus the total CGS) generated by that item
- What percentage of your company’s total gross profit was generated by that item
How Virtual CFOs Look at Revenue vs. Profit
Now stop and check your assumptions. You had a gut feel for which item was your best seller. Was your gut correct in terms of quantity sold?
Now look at the total revenue generated – and again at the gross profit. Was your best-seller responsible for generating the most revenue? Did it generate the most profit?
If you’re like many women business owners who use our virtual CFO services, the answers were “no.” This illustrates why looking at actual numbers is vital to growing your business. If you’re serious about increasing profitability, don’t focus on increasing sales of your best-selling item. Increase the sales of your most profitable item.
Let’s say that your company’s best-selling item sold 100,000 units last year. Each item sold for $1 with a CGS of $0.25, producing $100,000 in revenue and a gross profit of $75,000.
You also sold one client a premium product priced at $500,000. The CGS was $350,000, leaving a gross profit of $150,000.
At first glance, the $1 item was the best-seller. But the $500,000 item has a much higher gross margin. You would be better off finding ways to increase sales of that item.
Charting a Path Forward
Finding ways to sell more of your most profitable products and services is the key to generating rapid growth. Another approach is to increase the profitability of each product. In our next article, we’ll explore ways to do so, as well as critical mistakes to avoid when you’re analyzing your numbers. Stay tuned!
In the meantime, if you’d like help analyzing your revenue streams, book a complimentary Strategies & Solutions Session here to explore whether our virtual CFO services are right for you.