Which Products Are Generating Your Profit?

There are some things that every small business owner should be tracking; income, expenses, and profit are three of these things. To figure out which direction will be most successful for your business, you need to break it down even further—you also need to look at the profit margins for each product or service that you provide.

Overall profit margin for your business is an excellent measurement, and one you should look at regularly, but it is a very big-picture measurement. As a small business owner, you have a limited amount of time each day, and a limited amount of money—you need to know that you are putting your time and money into the products that are giving you the best return.

The best thing you can do to determine what your highest profit products or services are, is to determine your Cost of Goods Sold, or COGS. Here’s a brief introduction to the concept of Cost of Goods Sold and profit margins.

There are many small business owners who have done a comprehensive COGS measurement on their products and services and been quite surprised by the results. That big-ticket item that you think is making you all the money might actually cost you so much to produce that a smaller, more easily sold item could be producing a greater profit. These are the kinds of things that you need to KNOW, not guess, about your business.

As noted by the Corporate Finance Institute, “Cost of goods sold consists of all the costs associated with producing the goods or providing the services offered by the company. For goods, these costs may include the variable costs involved in manufacturing products, such as raw materials and labor. They may also include fixed costs, such as factory overhead, storage costs, and depending on the relevant accounting policies, sometimes depreciation expense.”

The process for finding out this information about your business is not hard. Like most accounting practices, it just takes keeping good records about your business, and running reports to check on the state of things. The kinds of information you will need for your COGS reports is unique to each business, and something that Shaw & Associates would love to develop with you.

Contact Shaw & Associates Chartered Accountants for accounting help you can count on. One complimentary meeting with us will put you and your business on a more profitable and positive path.