Like all maps, the first thing you have to do is find the 'You Are Here' marker. You need to know what products you sell and in what quantities. You need to know where your time is spent. You need to know where the exceptions are. Special orders, rework and customization can all be dead-end roads if not properly managed.
The most important piece of information you need to be a profitable company is to know what your products cost. At first glance it seems simple. You buy product A for $10 and sell it for $15, you buy product B for $8 and sell it for $12. You make $5 on product A and $4 on product B. But wait are these your true costs. What about other costs such as labor, rent and electricity?
Costs are divided into two categories fixed and variable. Fixed costs remain the same no matter how much you sell. Rent for your office space is a good example of fixed costs. If you don't sell anything this month you still need to pay the rent. Raw materials are a good example of variable costs. The amount you need changes depending on how much you sell. The more you sell the more materials you need.
To measure your true costs for each product further divide them into direct and indirect costs. Direct costs can be traced directly to a product. The materials used in the product and the salaries of the people who assemble and ship the product are direct costs. Indirect costs cannot easily be traced to a specific product. Rent, utilities and some types of labor can be indirect costs. For example your shipping department staff ships multiple products. You may also have managers, engineers and other support staff whose time is divided between the products. Allocating these costs to specific products can be difficult.
Go To Page: 1 2
