When your company's sales revenue isn't enough to cover your fixed costs, there are a couple ways to address the problem: increase your sales, or increase the return on your current sales -- the percentage of your current sales revenue that you get to keep. The first option is far easier said than done, since many of the factors that determine sales volume are beyond your control. The second option may be more feasible; businesses can often increase their profit margin enough on normal sales to cover an operating deficiency.
Increase the price of the product. Perform comparative research to ensure that you don’t price yourself out of sales by making your product far more expensive than the competition's, but you do not always have to be priced the same as the competition. If you offer a better warranty or better customer service, make sure you promote that as part of the reason a customer should pay the additional cost for your product. Even a 10 cent increase on a product that you sell 10,000 units of a month will increase your return by $1,000 a month.
Reduce the cost of your product inventory or materials used to produce the products you sell. Talk with your suppliers and see if you can negotiate discounts or lower pricing on inventory items. Check with other suppliers to see if they will offer discounts for changing suppliers. Even the slightest reduction in inventory or material cost can add up to big increases in profit.
Reduce the cost of preparing or selling the product. If you prepare or manufacture products, consider tying workers' pay to productivity to encourage them to get more done in the same amount of time. If possible, take on some of the preparation work yourself and reduce staff altogether. If your largest expense is the sales team, consider eliminating one sales position and filling that job yourself until the business is back on its feet.
- Financial Accounting; W. Steve Albrecht, James D. Stice and Earl K Stice
Kaye Morris has over four years of technical writing experience as a curriculum design specialist and is a published fiction author. She has over 20 years of real estate development experience and received her Bachelor of Science in accounting from McNeese State University along with minors in programming and English.