Product profitability is one of the main indicators, such that every self-respecting senior manager will certainly want to see in each report, which he brought for consideration.The calculation of profitability of production is carried out fairly easy, because the profitability is the ratio of net profit to the cost of the product.Thus, in order to calculate this figure, you will need to profit from the sale of each product, divide the cost price, respectively, of each product.The results can be used to compare and determine which products are the most profitable for the company.
Once you as a result of monosyllabic action that is usually automatically executed in a spreadsheet, obtained a result, begins the most important thing - the analysis of product profitability.What should you look at first?First of all, you need to compare actual performance with planned.Perhaps the sales of some groups of products turned out to be not high enough, or you had to significantly reduce the price - in this case, the level of profitability of production will be lower than expected, reflecting mainly on ineffective marketing policy of the company.In this case you need to revise it or to increase spending on the promotion of distressed goods, or reducing their share in relation to other goods.
If for any group of products, on the other hand, you get the results that exceed your expectations, it means that such products are promising.Most likely, you do not need to do anything further in this direction.Marketing policy is better not to touch it, as it is, and so works well, but increase sales should be careful, because that consignment was able to sell with a good margin, it does not mean that an increase in sales volumes, customers will find all the goods and.
Further analysis of product profitability should continue in the framework of the comparison of different products together.Your goal is to maximize the sales of products with high profitability and to minimize the sale of goods with low profitability.Of course, not always such a replacement is possible, because the volume of the market is largely dependent on the demand, but if the goods in question are goods-compliments, you may have to shift the focus.
Note, however, that the analysis of product profitability is not a generator of 100% the right decision.You need to consider the specifics of production, which is considered in the report.For example, the drinks served in restaurants, are characterized by high profitability, while the food is low, but you can increase sales of drinks only to a certain level in the future as such accretion is impossible, because people will simply stop going to the restaurant, where there is no food.
Do not forget that you spend a cost-benefit analysis of products in order to identify the strengths and weaknesses of your product policy.The figures clearly indicate to you on the weaknesses and have management experience and knowledge of the market should tell whether these weaknesses corrected by changing the structure supplied by the company to market the goods.
In addition, the profitability indicator is quite dependent on the industry.While in some industries, and 10% is an excellent indicator, the other if the margin falls below 100% - it's time to sound the alarm.Basically, it depends on the volume of sales, and if you can not win at the margins, you may be able to beat competitors on the volumes.
