Profit Improvement and Cost Reduction Part 1

Talking about profit improvement and cost reduction we cannot leave out the importance of estimating accurately.  There are a few ways to reach the goal of both profit improvement and cost reduction.

  • Increase your prices which improves profit, but only if that does not drive away customers.
  • Increase sales if your fixed costs stay the same
  • Improve your product mix to manufacturer more efficiently
  • Reduce your costs including overhead, labor and raw material costs

Increasing your prices without your costs going higher is a great way to increase your profit.  This is the best way to improve your prices except for the fact that there is something called “competition” which will not exactly work with you to increase your prices.  Increasing prices has another great benefit which is you do not need to work on cost reduction.

Increasing sales if your fixed costs remain the same is another great way to increase profits.  The difficult part is how to increase sales because if it was easy to increase sales everyone would be doing it.  One method of increasing sales and improve profitability is to estimate accurately and quickly in order to provide a better service.  When a price is given to a customer the customer does not want the supplier to come back towards the end of the job and ask for more money because the estimate was too low.   This type of situation happens but should not happen if a good estimating process is implemented in the business.

Improving the product mix is another way to create profit improvements.  The motivation here is you have covered some of your fixed overhead costs already and adding some new products which fit your area of expertise can increase sales without increasing overhead costs too much.

Reducing costs is sometimes the easiest way to improve your profitability.  There are many business processes which can be improved in most organizations to reduce costs.  For example, if estimating is being done manually through paper and pencil or even a spreadsheet, moving to a software estimating and quoting package designed specifically for your situation can reduce your costs considerably.    One example is when you can actually have one person do between 3000 and 5000 a year.   This is a lot of estimates that are done accurately and done by a single person.  If this was done by 5 persons you could see the cost savings immediately.

MIE QuoteIt from MIE Solutions offers free quoting software for step by step quoting.  The quoting software is very user friendly and offers customization of operations, materials, formulas and even table lookups.   Please visit our website and take a tour of the free quoting software instead of the old method of quoting in excel.