Want to save or increase jobs in America?


Want to save or increase jobs in America? Remember small and medium sized businesses account for the majority of jobs in this country. If they succeed, we all succeed. If they fail, we all fail. If you agree, a solution is to teach Business Owners and Execs how to price their service and product offerings so they may be economically viable.

Over the years I have been consulting, one of the most challenging areas for owners and execs to grasp is the art of pricing their service and product offerings.

Costing. The first hurdle is gaining understanding among the decision makers ALL costs must be dealt with. Many stop at the Cost of Goods Sold. My experience is 80% of them use the gross profit number as their goal. Forgetting the overhead. When it comes to dealing with overhead, it can become more art than science. And this is why many do not go here. Ignoring the overhead is not the answer.

Pricing. Once the costs are captured accurately. It is time to price it out. Leave out the competitive forces analysis for this. If the business is to recapture its costs and have enough left over for a profit, then the profit needs to treated as an expense to be recapture. My experience is less than 5% treat profit as an expense to be recaptured in the costing/pricing process.

How do businesses stay in business when they do not completely grasp this vital process? The answer is barely. And this adds to the economic malaise.

A lot of the confusion is due directly to the accountants role in determining what an income statement looks like. Many are focused on “top line” results. Why? Because it’s the first number. And one that can be easily grasped. Sales. Let me ask you a question? When a business is operating do they receive revenues first, then do they pay out the COGS? Then do they pay out the overhead? No.

Businesses pay out COGS in spikes, pay out the overhead in serial fashion and collect revenues last. Sometimes 30, 60, 90+ days later. Someone should design an income statement fashioned for small and medium sized businesses to use.

Example. A client of mine provides services to an NFL football team. This has been in place many years. The revenues do not cover the cost of providing the service in many years. No one ever thought to add in overhead or a profit. The pricing decision was made at the gross profit level only. This decade long relationship is draining the company of a vital resource, cash. Now a very important decision has to be made.

The point of all of this is jobs are on the line unnecessarily.

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About Consulting With Results
Experienced Consultant focused on delivering results across various industries, and throughout the value chain.

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