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Post: Too much work and going nowhere?
Q) We’re very busy, always have too much to do, but at the end of the month I’m never sure we will have enough to pay the bills. What am I missing?
You sound like a hamster on a treadmill. Too much work, but work getting you nowhere. One of the commonest causes of failure for a business is not charging the right price. My guess is that you would do better to take on less work, but try to push up the price, if you can. Price increases drop straight to the bottom line.
The arithmetic of it is quite simple. If you have sales of £100,000, direct costs of £50,000 and overheads of £20,000, your profits are £30,000. Increase your prices by 10 per cent and your profits will go up by £10,000 to £40,000. Compare this with increasing the volume of your sales by 10 per cent. This would lead to an increase in direct costs and the improvement in profits would be only half at £5,000. I’d rather put up prices any day. And even tiny increases in price can lead to a good improvement in profits.
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User comments by Lee Tumbridge at 11:08am, 29 May 2007
I agree it does sound like you are under charging for your service, but also be wary that increasing prices by to much may have a negative effect on sales moving forward. Another way to help this issue is to look at your suppliers, if you have access to sufficient cashflow then you can always negotiate better margins on supplies.
Try Wageroller 's service to free up cashflow and negotiate hard with suppliers over reduced payment terms. You could also apply small increases in charges with customers that are slower paying and leave the larger/better ones you need to keep. The net result is smaller increases to selected customers and reduced costs on supplies, giving an overall better profit margin. Lee Tumbridge
User comments by Mark Duffy at 2:33pm, 18 Feb 2008
You could also look to reduce your time spent on admin, especially if you're a small company. Try outsourcing your accounting & bookkeeping functions. I have been running a small firms outsource solution for years and most of my clients finds they can increase their working time by up to 35% a week for relatively little costs. mark@duffyuk.com