Business Blog No 37 – Costing and Profitability

Question?

Do you really know what your products and/or services actually cost?

Do you know the profitability of your products and/or services?

Can you confidently say you know where and from which customers you make or lose money?

Where do you focus your business to improve profits?

Have you ever wondered why your profits may be falling even if you are holding your gross margins?

How many companies are honestly satisfied with the data their costing and quoting systems provide?

Do you know that the core information on which your business decisions are based is your costing data? By definition without accurate costing data, your pricing and profitability analysis will also not be accurate, and hence your business strategy and underlying assumptions may be flawed?

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Solution

You either need to review your existing costing systems, update them and/or undertake an Activity Based Costing (ABC) project!

Once you have accurate costings, you can then identify the profitability of products, services, customers and/or segments. You can price, quote and use the information as a core ingredient to your Strategic Planning process.

Although out of fashion, Activity Based Costing (ABC) remains a key tool for Costing purposes in my view and is as current today as it was when I did my first ABC project 20years ago. In fact, only a few months ago, we completed a successful ABC project for a listed company identifying customer, segment and product profitability across multiple sites.

Checkmate…

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SUMMARY

If there is enough interest, I am thinking of doing a blog series on Activity Based Costing (ABC) as a foundation for business success?

Let me know if you would like such a series. Call on (03) 9847-6834 or email us directly with your views.

Ross – Billson Advisory

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