Most businesses (especially if they are past their startup phase) will face a significant risk in one key area of their business - costing. Although it might seem basic to consistently and accurately calculate costs, monitoring them for each and every project or product cycle is a going to be a challenge. The key focus here is ensuring that your costing will only help your profitability - not break it.
Any project or product launch needs to begin with planning. Here, you must calculate all costs associate with delivering your product or service as accurately as you can. A common oversight during the planning phase is underquoting production costs, which can lead to you setting prices that barely cover expenses or, in a true worst case scenario, incur loses.
Key Takeaway: A detailed and realistic costing plan is essential. It's far better to price higher with all costs than to bear the burden of unplanned losses.
So, now that you've done your meticulous planning, are you out of the woods? No. Even with a great plan, the execution is going to have its own set of new challenges. Costs can vary over time, or your business might occur unexpected expenses - how can you prevent your profit margin from being jeopardised? Don't find yourself failing to monitor your costs consistently through a project - by the time you realise the mistake you will have already incurred losses.
Actively track expenses, particularly for variable costs (freight or material prices) as these can change very frequently. Stay informed and make real-time adjustments.
Where possible, incorporate clauses into contracts to allow for flexible price adjustments based on material or labour costs. Ensuring some degree of flexibility will be crucial for creating a safeguard against margin erosion.
Monitor your industry's pricing trends. If competitors are adjusting prices due to cost increases, it might also be time to review yours. If you can be proactive and react fast you can avoid selling at a loss.
Key Takeaway: Execution is where 'the rubber meets the road', so keep a close watch on reality. An agile approach to pricing adjustments will be your best defence against unexpected costs.
If there is one thing you take away from this article let it be this: staying profitable comes down to one thing - knowing your numbers. Have accurate, timely information on costs to keep profit margins healthy. Consistent data monitoring means you can identify when costs start creeping up and can adjust accordingly.
Key Takeaway: The faster you can identify you cost changes, the better your response will be. Trustworthy data is the foundation for proactive decision-making.
Costing issues are a common yet easily avoidable reason as to why established business struggle. If you're ever in doubt make sure you are:
Accurate Planning: Ensure all costs get accounted for from the start.
Active Monitoring: Track expenses throughout the project lifecycle.
Flexible Pricing: Incorporate price variation clauses in contacts where possible.
Stay Informed: Keep an eye on industry pricing trends and competitor moves.
In business, costing issues can rapidly escalate if not managed carefully. However, with a structured approach to planning, active cost tracking, and agile pricing adjustments, your business can avoid the common pitfalls that turn profitable ventures into costly mistakes.
Situation: A mid-sized manufacturing company is selling high-volume, low-margin items. They failed to account for rising fuel costs and incurred a 12% drop in profits in just over one quarter.
Action: With our assistance as their Virtual CFO, we implemented a tracking system and embedded flexibility clauses in their contracts to help pass on the price increases.
Result: Achieved 15% in cost reduction - simply by passing on rising costs more quickly.
One of the most impactful ways we would help your business is by establishing a thorough cost analysis process. This includes reviewing every element - materials, labour, logistics, and unexpected expenses - nothing gets overlooked.
Key Impact: With our rigorous approach to cost tracking, you can get a clearer picture of where every dollar goes within your business, improving pricing decisions and protecting margins.
In today's volatile market, static pricing can be very risky. By implementing dynamic pricing strategies that account for market and cost fluctuations your business will get the flexibility it needs - regardless of external pressures your profitability doesn't get eaten into.
Key Impact: Through dynamic pricing, CFO Dynamics will ensure your business can adjust to cost fluctuations proactively rather than reactively, preserving your profitability.
A good Virtual CFO should provide more than just tracking costs - at CFO Dynamics, we identify areas your business can streamline expenses and increase cost efficiencies -
Key Impact: Cost-control measures allow businesses to maintain quality while reducing unnecessary expenses, directly improving profit margins.
A Virtual CFO helps design and refine costing models that support the business's specific needs and growth goals. It includes choosing the right costing method - such as activity-based or direct costing - and ensuring it aligns with the overall pricing strategy.
Key Impact: By tailoring your costing model, you gain clarity and can price far more effectively, giving you a competitive edge.
Keeping an eye on industry changes and tracking cost data continuously is one of the major roles of a Virtual CFO. It will allow your business to respond quickly to cost fluctuations, rather than being caught off-guard by them.
Key Impact: By staying agile with real-time adjustments, a Virtual CFO service will protect your margins and help you stay profitable, even in fluctuating markets.
Here at CFO Dynamics, we don't just oversee costs - we look at how they translate to profitability. By focusing on your gross profit, operating margins, and overall ROI, we ensure each product and service contributes positively to your bottom line.
Key Impact: With CFO Dynamics strategic insight as your Virtual CFO, your business will strive for consistent, strong and predictable margins, avoiding projects or products that could jeopardise your profitability.
In essence, a Virtual CFO service empowers a business to optimise its cost structure, remain agile in pricing, and protect its profitability. With the guidance of CFO Dynamics as your Virtual CFO, your business can gain a sustainable, growth-focused approach to costing. Breathe comfortably knowing your margins are intact and your business is positioned for long-term success.
Ready to put your business on track? Take a closer look at your cost structures today. If you're unsure of where to start, a Virtual CFO consultation can provide clarity and a path forward. Get in touch with us to explore how to future-proof your costing practices and ensure sustainable profitability.
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