Different Approaches To Your Profit Margin
Indirect spend, (usually the same for most companies – insurance, vehicles, buildings and buildings maintenance, utilities, IT, telephony, and so on) often adds up to 40% or more of an organisation’s outgoings.
Surprisingly these are very often not given the focus that the ‘core’ costs get and developing in-house expertise can be difficult and costly. Time and resources are limiting factors too with most indirect spending budgets being tacked on to the remits of individual departmental Heads.
The impact that these costs can have on your bottom line though shouldn’t be underestimated though.
- If for example, your income is, say £100K, the costs of creating this to your business are £80K, then simplistically your profit is £20K
- If you wanted to increase profit via sales; if you increased sales by 20% your income is now £120K, the associated costs to get that go up proportionally so they rise from £80K to £96K – and your profit is now £24K
- If you were to increase profit by reducing costs; if you reduce your spend by just 5% from £80K to £76K, even with zero increase to sales your profit margin is still £24K
