How to double your profit (part two of a three part article)

Last month I wrote about applying Pareto to the way you spend your time.  Today I want to cover your products or services.  What you should do is to list your products or services in order of sales or gross profit contribution.  If you do the analysis correctly, it’s a sure thing that if you draw a line at 80% of the sales or profit contribution, you will find that it will be represented by around 20% of your products or product groups.  So that tells you at least 3 things.

First of all you are carrying far too many products.  Those slow moving items are using up shelf space, overdraft interest and in the main are just collecting dust.  So why not dump them, convert into cash, and then order them when required?  If we are talking about a non contributing service then by all means keep providing it but don’t waste advertising revenue on it unless it is a concerted drive to increase that sector.

But think twice before you do that.  Because the second thing you learn from this analysis is that your advertising dollar is best spent in promoting those products and services which are performing for you.  If you can double the quantity sold of those items then it follows that the other side of the equation also increases i.e. your sales revenue increases by 80%.

And the third thing you can find out is who is buying those products, and why.  And with that information you have the tools to really target your marketing and get the best return for your dollar spent.

So take some time out, do the exercise, and then the most important thing, set out a plan of action and just do it. 

Our final article in this series will cover Pareto as it applies to you customers or clients.

And by the way, if you want us to perform a Pareto analysis on your business, give us a call.  For the insignificant amount the exercise will cost it will repay you many, many times.