When you read the article "So what is breakeven and why is it so important?" under Articles on this site you will understand the concept of breakeven, the relationship between fixed and variable costs, the amount of business you do, and in particular, the damage that discounting can do to your business.
There is a relationship between that article and the subject of our previous blog "Are you selling dead fish?" Have you noticed that when writers discuss business matters they usually do in specific functional terms; for example in financial, marketing, HR or operational terms? Rarely do they discuss the subject taking into account the relationship between the different functional areas of the business.
Of course you cannot do business without that relationship existing, which is why examination of your business processes can be so rewarding. Business processes must be cross-functional to deliver to the customer. But that is another subject, which we will examine at another time. Prompt me if I don't get to it.
It was because of this relationship between functions that the breakeven article looked the financial impact of a marketing tactic in discounting. As you saw, it's not a very nice picture.
Dead fish have much the same impact on breakeven. The breakeven sum is about gross margins and the volume of sales. So what do you think is likely to happen to your breakeven point if you dress your ‘customer value package' as dead fish, rather than something that solves a problem, and provides a benefit, something that meets the customer's specific need?
You guessed it - lower sales, and because you don't have a point of difference, lower margins because you will have to compete on price.
So to bring forward your breakeven point, leading to increased profits, you need to promote your product or service in terms of benefits in the customer's eyes, so that they can clearly see WIIFM (what's in it for me), and pay a price that reflects value to them and gives you a decent profit margin.
In our latest newsletter we discuss the need to be more specific about your customer profile in your target market.
In my previous blog I mentioned I am interested in developing a product which will help you get your business moving again. If your breakeven point is stretched out because you are not profitable then you have a profit leak ...... somewhere.
The product, a ‘diagnostic' tool will help you, with some assistance from me, identify where that profit leak might be and, importantly, what you might do about it.
So let me know your thoughts on what might be of interest to you.
© Copyright 1998 - 2008 Adam Gordon, Profits Leak Detective
Some profit losses are pretty obvious - so you fix them.
BUT, what if you don't know profits are leaking, cash out the door?
Possible leaks could be anywhere.
Are there some clues or symptoms that are tell-tales?