Why risk selling at less than cost price Contact: 0411 522 521
or at a lower margin than competitors? John Cleary
Improve Margin over a Product/Service lifecycle
It is good cost management to know which products/services:
- generate the highest margin?
- contribute most to profit?
- are loss-making? i.e., sold at a lower price than they cost monthly and yearly?
Selling at less than cost price or at an unnecessarily low margin can be fatal.
Target Cost
Target Costing is a strategic initiative not an exercise in blind expense reduction.
Setting and meeting a target cost enables:
- more products/services to contribute more to profit
- fewer products/services as loss-makers
- focussed effort to increase the sales volume of higher-margin products/services
These Case Studies confirm the cost of blind expense reduction:
Boeing – outsourced on price not quality, safety or service. Expense reduction proved, once again, that it provides no benefit when it reduces revenue, cashflow and profit.
Carlton & United Breweries – reduced beer alcohol content. Sales & market share fell!
Victorian State Government – ‘budget anchor’ undermined quarantine objectives & spread Covid-19. Huge cost to citizens’ welfare, the Victorian economy, & the Health System.
Costing in a Competitive Market
In business as usual, once prices are set, the calculations are rarely revisited even when components vary over time or the external market changes without warning.
Target costing allows a business to:
- monitor a product’s contribution to profit throughout its product life cycle
- achieve target profitability, improve financial performance and increase profit
- respond to competitive market price changes in full knowledge of internal costs
- identify sales targets to transform Gross Margin estimates to banked $s and profit
- retain valued features and remove less valued features increasing cost.
Volume and Margin Matrix
A Volume and Margin matrix identifies which goods/services are to be:
- target costed to contribute to improved financial performance
- reviewed based on their cost components and customer value of those components
- a marketing focus to increase sales, revenue, margin, and profit.
Call John Cleary on 0411 521 522 to discuss HOW to improve financial performance by creating value, increasing revenue, and improving cashflow.
