Improving Your Businesss

Profitability
Learn how to analyse your pricing on
products and services to focus on
profits.
 As a Certified FocalPoint Business Coach
Eloise works with a broad spectrum of
clients to increase their sales, profits,
efficiencies and more in their businesses.
She brings over 28 years of award
winning experience, from various
leadership roles in the distribution,
manufacturing and service industries .
Eloise has presented dozens of
workshops to hundreds of professionals
and business owners increasing their
effectiveness and business results.
She also specializes in working one on
one and in group to help her clients
achieve massive success in their
business.
Eloise Pasianotto CMA MBA

Focusing on Success
How can you increase Profits?
Objectives today:
1. Understand the impact of Costs and
Expenses on your Breakeven point.
2. Learn the impact of gross margin and cost
mark up methods on your profitability.
3. Build a pricing model to understand the
impact of pricing and the affect discounts
have on your business
 Agenda
Definitions of key terms and some questions
Cost Mark up and Gross Margin Pricing
Methods
Pricing Model
Affect of Discounts
Next Steps
 Definitions
Cost of Goods Sold = the sum of the costs
related to the products or services sold
Fixed Costs e.g. equipment
Variable Costs are volume
related e.g. materials
Classification and Assigning
How are you defining and allocating your
costs?
What level of review do you have in place?
 Definitions
Gross Profit = Difference
between Sales and Cost of
Good Sold Sales = 125.00
COGS = 75.00
Gross Profit = 50.00
Gross Margin Gross Margin = 40%
Generally is stated in percent (50/125*100)
Gross Profit divided into Sales
Gross Margin Dollars is the How have your
same as Gross Profit margins been
tracking?
 Definitions
Expenses
Fixed Expenses e.g. headcount
Variable Expenses e.g. office supplies, travel
Discretionary

What are your biggest expenses?

How much discretionary spend do you
have?
How are you controlling them?
 Definitions
Contribution Margin (Dollars)
Sales less variable costs
Excellent to use to compare what products or
services contribute more to your profitability
Analyze for opportunities to reduce costs

What are your Contributions Margins by

Product or Services?
 Check Point
Know your total fixed costs and expenses
What is your Number?

What makes it up?

This number is a key baseline number that you
must recover through profits
Look for ways to minimize these
Ideas?
 Definitions
Break Even = What volume of units do you
need to sell to recover all your fixed costs and
expenses?
Calculate Total
For each Product or Service

What is your break

even level?
 Break Even Working Example
Selling price = $125.00
Fixed Costs and Expenses total = $250,000 *
Variable Cost = $75.00

Breakeven = Total Fixed Costs and Expenses divided

by (Selling price Variable Cost)

Step 1 $125.00 - $75.00 = $50.00

Step 2 $250,000/$50.00 = 5,000 units
 Break Even Working Example
Therefore Total Sales must be at least

5,000 units X $125.00 = $625,000

What is your total

sales needed? How
are you tracking?
Cost Mark up and Gross Margin Pricing
Methods
Cost Mark up
Add a dollar value to your Cost to determine
Selling Price
Apply a factor to your costs to Determine your
Selling Price
Gross Margin
Use a predetermined desired Margin to determine
your Selling Price
Cost Mark up and Gross Margin Pricing
Methods Compared
Cost Mark up Gross Margin
Cost = $75.00 Cost = $75.00
Mark up = $30.00 or 40% Desired Margin % = 40%

Selling Price = $105.00 Selling Price = $125.00

Calculated as: Calculated as:
$75.00 +$30.00=$105.00 $75.00/(1-.40)=$125.00
or
$75.00*1.40= $105.00

Profit = $30.00 (28.6%) Profit = $50.00 (40%)

Cost Mark up and Gross Margin Pricing
Methods Impact to Gross Profit $
$350.00

$300.00

$250.00
Gross Profit using Gross
$200.00 Margin to calculate SP

$150.00 Gross Profit using Cost

Mark up to calculate SP
$100.00

$50.00

$-
10% 20% 30% 40% 50% 60% 70% 80%
 Basic Pricing Model
Pricing Analysis and Modelling
Price per unit $ 125.00
Units Sold 5000
Variable Cost per Unit $ 75.00
Percentages Per Unit
Sales Revenue $ 625,000.00 100% $ 125.00
Variable Costs $ 375,000.00 60% $ 75.00
Contribution Margin $ 250,000.00 40% $ 50.00
Fixed $ 250,000.00 40% $ 50.00
Profit $ - 0% $ -

Break even sales Volume 5,000.00

Break even sales $ 625,000.00
 Basic Pricing Model
Pricing Analysis and Modelling
Price per unit $ 145.00
Units Sold 5000
Variable Cost per Unit $ 75.00
Percentages Per Unit
Sales Revenue $ 725,000.00 100% $ 145.00
Variable Costs $ 375,000.00 52% $ 75.00
Contribution Margin $ 350,000.00 48% $ 70.00
Fixed $ 250,000.00 34% $ 50.00
Profit $ 100,000.00 14% $ 20.00

Break even sales Volume 3,571.43

Break even sales $ 517,857.14
 Affect of Discounts
Discounts must be carefully considered to not erode
profits BEFORE fixed expenses are recovered.
Pricing Analysis and Modelling
Price per unit $ 112.50 Discount by 10%
Units Sold 5000
Variable Cost per Unit $ 75.00
Percentages Per Unit
Sales Revenue $ 562,500.00 100% $ 112.50
Variable Costs $ 375,000.00 67% $ 75.00
Contribution Margin $ 187,500.00 33% $ 37.50
Fixed $ 250,000.00 44% $ 50.00
Profit -$ 62,500.00 -11% -$ 12.50

Break even sales Volume 6,666.67

Break even sales $ 750,000.00
 Next Steps To get more control over
your Profits
1. Know your Breakeven Point
2. Review your Pricing and Discounts
3. Understand your costs and expenses
Separate variable versus fixed
Plan in place for regular review and reduction *
4. Analyze your products and services
Know your Profit generators
Address your Profit eaters

Tools to help
Pricing matrix model
* PIC Profit improver Checklist for Costs and Expenses
 Thank you
For letting me share some concepts with you .

I hope you take action and have a positive effect on your business!

If you would like to receive

Pricing model template
PIC Profit Improver Checklist
Questions and/or more information

Please contact me at either: info@effectiveprofessionalconsulting.com

Or call 289-553-0241

Have a profitable 2013!

Eloise Pasianotto CMA MBA