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Increase Profitability – Product Mix

Jun 11Jeff Matthews

The mix of products you sell, whether services or products, is based on customer demand.  But the products you market and promote can expand your offerings and improve your profits.

When you have a dominate product that is in a competitive pricing situation, look to complementary lines to expand your offerings.  Help those who take orders from customers to understand what other products the customer may also need.  Too often the customer service personnel do not have sufficient field experience to make the connections.  They may also be under pressure to take the next call or to complete their paperwork.  They already have a customer who wants what you offer on the phone, allow them and train them to cross-sell.

How are you motivating your sales personnel?  Are they incentized to promote higher margin products and new customers?  Are they rewarded for expanding existing customer volume only?  If so, are they less motivated to promote better margin products?  Make sure your compensation programs align with your business goals.

You need to understand the selling prices, costs and margins of each product.  Once you break down, what your margins are by product and by customer, you can mine this data to make intelligent decisions about your promotional dollars.  Spend time contemplating what will motivate customers to choose your higher margin offerings.  How can you best position yourself to raise not just your top line sales but also your average margins?

Cost assignment can be important when you examine margins.  If you are applying inbound freight and production overhead is a simple matter, you may be weighting your margins toward higher volume products and against lower volume products.  Examine your indirect cost assignments and make sure the methodology is appropriate.

The best way to improve product mix is to measure it.  Who is buying what lines and what are they paying?  You should examine this sales data each month.  The process of studying and tracking customer sales mix will prompt ideas on how this mix can be improved.

B2B CFO® has over 200 experienced chief financial officers have deep experience in studying product mix, selling prices and material costs.  A B2B CFO® can help you understand these areas and offer independent insight to improve your business’ profits.

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