Management consulting, strategic planning, organizational restructuring, capitalization and financing for entrepreneurial start ups, ventures and small – medium-sized businesses. Virtual advisory services available via telephone, Skype or web conferencing platform.
The export of goods and services overseas has never been as profitable or as possible as it is right now. With a slightly deflated dollar and an ever-increasing overseas demand for products made in the United States due to increasing consumerism amongst the emerging economies, creating an export channel or division to your business is a wise choice in terms of broadening your customer base and diversifying your sources of revenue in a tempestuous domestic economy.
With a computer (I like to utilize Skype), a telephone and a comfortable chair, many companies in the United States can create virtual export divisions at minimal cost — without ever taking a single plane trip. To learn more about this please feel free to contact me at http://bit.ly/CASTLEDIRECT . You’ll receive the help that you’ll need. This is the easy way to get started if you’re not already in the export business, or if you’ve just gotten started but need a bit of confidence bolstering and guidance.
If you prefer to engage in the business yourself, remember that as an exporter you face risks that most businesses never have to consider. When most banks hear the term “export,” they usually become hesitant to lend, or to issue any type of loan or credit guarantee (remember Letters Of Credit? That’s almost nostalgic nowadays). The good news here is that the Export-Import Bank of the United States currently has a program which guarantees up to 95% of exporter financing – externalizing your risks associated with both trade transactions and larger international projects.
If your company delivers multi products or services, do you know which ones are contributing to profits and which ones are actually dragging down your potential profitability. Most business owners fail to maximize short- and long-term profitability because they fail to routinely conduct this type of analysis. The greater the number of products or services you provide, the more crucial this type of cost contribution analysis is.
Let’s examine several scenarios (I’ll use the term “product” to include both products and services):
Number 1: The product which generates the highest percentage of revenues costs you the most (direct cost) to produce, and actually renders the lowest profit margin or contribution to fixed cost coverage;
Number 2: The product which generates the highest percentage of revenues costs you more to produce than you charge per unit, so it is a drain on the profitability of your other products, which may be less glamorous, but which generate healthy profit margins;
Number 3: Several products which are small contributors to revenue happen to generate the highest profit margins and are actually subsidizing your company’s greatest revenue-producer, which has a minimal or negative profit margin.
You can make the above determination with the help of some cost accounting and financial analysis – if your accounting staff cannot do this, hire an independent professional consultant to do this work and prepare a report. Then act on that report!
Once you have obtained that report (and the information unearthed is often very surprising) you should take the following steps, although you must occasionally allow a marginal “loser product” to continue in production and sales simply because it is important to your reputation or branding, or because it actually contributes in some way to the sales of the more profitable of your multiple lines. The classic example is the program where you give the razors away at a loss and make all of your profits on the special razor blades or cartridges – specially designed to fit your ‘unique’ razor design:
Step 1: If the market is sufficiently large for a profitable product, consider investing more deeply in marketing that particular product;
Step 2: If a product is inherently unprofitable (and to the extent that it does not stimulate sales of your other multiple products), either stop producing and selling it, or, if the market is large and your competitors are all marginal, consider 1) raising your price per unit, or 2) reducing the cost of production per unit. In some cases, a larger run of production can generate significant economies of scale and increase profit margins for the product on the whole. If neither of these two alternatives are possible, work toweard eliminating that product from your portfolio of offerings.
In viewing your company’s performance, it is not adequate to simply know how much revenue and profit are being generated for a given accounting period – it is every bit as important to know where your profits are coming from (i.e., from which products), and where they are being lost.
Ultimately, by acting on this extremely valuable information, you can optimize your product mix and maximize your profitability potential.
Douglas E. Castle
NOTE: THE INFORMATION CONTAINED IN THIS ARTICLE SHOULD NOT BE CONSTRUED BY THE READER AS BEING LEGAL, FINANCIAL, TAX, ACCOUNTING, ECONOMIC OR INVESTMENT ADVICE. NO OFFERING OF SECURITIES OR OTHER INVESTMENT INTERESTS OF ANY TYPE IN ANY ENTITY IS MADE HEREBY, NOR IS A SOLICITATION FOR THE PURCHASE OF SECURITIES OR OTHER INVESTMENT INTERESTS OF ANY TYPE IN ANY ENTITY MADE HEREBY. THIS ARTICLE IS INTENDED FOR GENERAL INFORMATIONAL PURPOSES ONLY AND REPRESENTS THE VIEW OF THE AUTHOR ONLY.
THIS ARTICLE IS COPYRIGHT 2014 BY DOUGLAS E. CASTLE, WITH ALL RIGHTS RESERVED. ANY REPRODUCTION, TRANSMITTAL OR DISTRIBUTION OF THIS ARTICLE, EITHER IN WHOLE OR PART, IS UNAUTHORIZED AND MAY BE UNLAWFUL, UNLESS FULL ATTRIBUTION IS GIVEN TO THE AUTHOR AND ALL IMAGES AND LINKS IN THE ARTICLE REMAIN INCLUDED AND “LIVE.”