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November 2009 Issue #14 |
Strengthen Your Business by Eliminating the Weak End of Your Product Line In past newsletters we've focused on finance, marketing, getting out of debt, sales, and establishing a sustainable growth rate, so it's time to look at your product line. For some, the statement "more is better" sums up their philosophy on an effective and profitable product line. But that mantra is missing a key word: profit. To maximize your resources and profit, regularly review your product line and note your low-profit-margin items. Continuing to carry low-profit-margin items in your product line will depress your profits and hold your potential profit margin down. Typically, these items use up valuable (and perhaps limited) resources that could be more profitably used elsewhere. Tom Monaghan, founder of Domino's Pizza, tells this story about his first pizzeria:. "One night, most of my employees didn't show up, and I didn't know whether to open or not. Someone said, 'Why don't you just cut out the six-inch pizzas?' We had five sizes, but most of our business was the smallest, the six-inch. It took just as long to make as the big one and just as much time to deliver, but cost less. We never got busy that night, and yet we made 50 percent more money than we ever had. The next night I cut out the nine-inch pizza, and all the bills caught up. I learned then that keeping things simple could be more profitable." Business owners should continuously ask themselves two questions:
Sometimes a business owner can be too involved in the daily operations to find the time for review and evaluation of their product line profit. CFO-Pro can help business owners sort out the low-margin items. The Wisdom of Henry Hazlitt (1894 - 1993)
When the number of bureaucrats becomes excessive, it is the taxpayers' income that supports them. If these bureaucrats were not retained in office, taxpayers would be permitted to keep the money that was formerly taken from them for their support. It is forgotten that the taxpayers' income and purchasing power goes up by at least as much as the income and purchasing power of the former officeholders goes down. However, the matter does not end there. The country is much better off without the superfluous officeholders. These bureaucrats must now seek private jobs, or set up private businesses. And the added purchasing power of the taxpayers will encourage this. But the officeholders can take private jobs only by supplying equivalent services to customers of the employers who provide the jobs. Instead of being parasites, they become productive men and women. We are not talking of public servants whose services are really needed -- necessary police, firefighters, street cleaners, health officers, judges, legislators, and executives who perform productive services as important as those of anyone in private industry. They make it possible for private industry to function in an atmosphere of law, order, freedom, and peace. But their justification consists in the utility of their services -- not in the "purchasing power" they possess by virtue of being on the public payroll. The "purchasing power" argument could just as well apply to a racketeer or a thief who robs you. For every job his spending provides, your own spending must provide one less, because you have that much less to spend. When your money is taken by a thief, you get nothing in return. When your money is taken through taxes to support needless bureaucrats, precisely the same situation exists. About Business Mastery with John Lafferty Every other month, Business Mastery provides financial tools that improve bottom-line results and build business equity. CFO-Pro can assist you in implementing these tools in your business. We specialize in identifying the causes of negative trends and ways to take corrective action. Feel free to forward this newsletter to others and send us your questions or suggestions for future issues. Free subscriptions are available on our website, CFO-Pro.com, from the Newsletter page. |
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