Include all the costs!I’ve said before that knowing how the different parts of a business are performing is important, so that informed decisions on what to do can be made.
Making sure you have ALL the information is an important part of this.
I worked with a business that was trying to work out how much profit its services were making and how much they should be charging for them. They got their revenue figures, applied the costs and were “happy” with the profit each individual service was making. However, they couldn’t understand why the bottom line figure was so low.
When I looked at it I noticed that they had mis-allocated some significant costs.
They had treated all admin as an overhead, but had neglected to look at how much time was spent by the admin staff on looking after the individual services rather than normal general admin duties. The headcount had increased to take on these “admin” tasks.
When reallocating these costs, the business realised that the profits for each service were not as high as they thought and meant that some were, in fact, loss making.
Knowing this they reviewed their pricing and service delivery, made some changes and improved the profitability.
Having the right information at the right time can make all the difference.
3rd July 2018