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How To Determine Your Business’ Most Profitable Products

How To Determine Your Business’ Most Profitable Products

Developing a marketing strategy can be very challenging at first. Once you know where you should focus your efforts, however, everything else will fall into place. Aside from developing an efficient payment system to stay on top of your business finances, it also pays to be familiar with how to determine your business’ most profitable products.

Why Do You Need to Know This?

By being fully aware of the cost and profit for each of the products you sell, you will be able to make informed decisions in the future. That will make you grow your business better while making it profitable as a whole. This will help you reach the right audience while also helping you optimize marketing strategies that are available to you. Likewise, you will be better at allocating your marketing budget, knowing that you can increase your return on investment.

How Do You Determine Product Profitability?

It is going back to the basic concepts of accounting, that is, establishing the differences between profit and revenue. These two terms are often used interchangeably by even the most established businessmen out there.

Profit is computed by considering the costs that come with running the business. This includes all direct and indirect costs that are integral to your operations. It is computed by the equation “total product revenue less total product cost”. Revenue, on the other hand, refers to the amount of money that comes into your account before you even pay for your expenses. It is as simple as saying that when you sell a product for $20, then that $20 is already your revenue.

Differentiating Between Direct and Indirect Costs

Direct costs pertain to the price you paid when you purchased the materials that you used to manufacture the product. This also includes the cost you paid for your employees in order to come up with the product. Meanwhile, indirect costs, also referred to as overhead costs, are costs that you continue to invest in when running your business. Indirect costs include internet fees, marketing efforts, and digital maintenance costs, among others. This is somehow more difficult to compute when you are allocating it for a specific product.

Choosing Your Most Profitable Product

It is also crucial to consider the cost benefits as well as the price point. Along this line, you must not just consider how much you are selling a product you purchased just to reach a profit. Say, you bought a product from another country at 10 cents then sell it at $1 in your store. That makes it profitable, in many people’s point of view. The truth is, you also have to consider how much space it takes in your business, or how long it stays in stock.

Making Things Easier

In order to identify which products are most profitable for your business, you can invest in POS systems with the capability to run reports and identify them. An example of this is the CLOVER® STATION POS SYSTEM. This is an innovative easy setup solution that does a lot of work and makes things easier for small businesses.