Evaluating Your Product Line to Increase Profits

Rapid advancement in technology, the ongoing stress of profit growth and the increasing importance of worldwide business competition requires companies to continually evaluate their product lines to determine opportunities for growth. For companies to be successful in this endeavor, they must effectively define their future market needs, project advances in technology and be alert to competitor capabilities and intentions, which can pose a number of challenges. But, there are steps that you can take to develop a product line evaluation program that can help increase your bottom line. These steps include:

Step #1: Maximize your accounting system.

Make sure your current accounting system is set up to provide enough detail to evaluate the effectiveness of your product lines. Most accounting systems, even those as simple as QuickBooks®, are able to provide the information you need. With proper set up, your system should be able to track the costs and sales of your product lines. This includes build-up costs, direct labor, material and overhead cost allocation.

Step #2: Determine your gross product profit margin.

Once your accounting system is up to par, determine if your product line (or specific products in your line) are loss leaders or business mainstays for your company. There may be reasons why you keep a product in your line even if it’s not producing as much profit as your mainstay, but it’s important to continually evaluate these items to ensure they are still worth producing. For example, while product X equals only 20 percent of your business and product Y equals 40 percent, you need to know how likely it is that a customer will purchase both products together. If your accounting system does not maintain sufficient detail of your product sales and cost, you may not know how much money your business is losing on specific products or how profits have been reduced because of this product.

Step #3: Consider your technology needs.

It’s important to continually analyze the technology system you are using to develop your products and determine if it’s still cost-effective or if there is a better method. You also may need to upgrade your technology to meet customer demands. For example, a printer may have operated successfully with a specific press for many years but its customers are demanding a new method that allows them to obtain printed products quicker and cheaper. The printer needs to be aware of what its customers want and upgrade technology accordingly, or they can be assured that their customers will go to a competitor that offers the service they want.

Step #4: Know your competition.

Understanding who your true competition is and knowing what types of products they sell is critical. Many smaller retail establishments struggle to compete with the insurgence of big-box retailers. Relying on customer service is often their only advantage. Business owners need to evaluate what it’s costing them to provide this superior service along with their products and determine if they can still remain competitive with the larger volume retailers. This is especially true for car dealers, appliance retailers and other service-oriented businesses.

Step #5: Review your marketing strategy.

Analyze your marketing plan, including the message points and media you plan to use to support your product line. Make sure that you are using the most cost-effective methods for marketing your product. Stay current on new ideas that may allow you to track your marketing investment more accurately.

Step #6: Evaluate your sales training program.

Take a look at your sales staff and make sure you have the right people in place to sell your product. It’s also beneficial to make sure your training program incorporates the most appropriate sales methods for your product line. You may consider hiring an outside, unbiased consultant to evaluate the effectiveness of your programs.

 

This article was originally published in The Rea Report, Spring 2005 issue.
Note: This content is accurate as of the published date above and is subject to change. Please seek professional advice before acting on any matter contained in this article.