How Many Business Units Do You REALLY Have
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Merager Financial Solutions
How many business units does your company have? We ask that a lot in our engagements with clients. And it’s really interesting, the responses that we get. Sometimes we hear two, because maybe they have two product lines and in the marketing and in the sales, they don’t work together. So they think they have two. But, what about administration? What about the other piece that you have in between those or maybe you’re reselling products.
One of the more interesting engagements that I’ve had, it was a software company and they were doing a fantastic business, but the company was losing money. The owner was pulling his hair out. He couldn’t understand what was happening. They were up-charging, they had an hourly rate that was vastly more than the hourly rate that they were paying their employees. They couldn’t figure it out. They thought they had two business units. But, they didn’t figure administration. You should always consider administration. It’s going to be an anchor on the company. It’s never going to make any money.
In this case, they were selling, they were reselling items. They were reselling, let’s say, laptops, and other things, but they were selling hardware. Reselling hardware. So they would buy it from another company. They would do whatever they needed to do with the piece of equipment and then they would sell it to their client. Great business. Great business idea. Client was happy. They didn’t need to spend all their time, all their people’s time getting the laptop ready, right? It’s not something that that business does best. They could make a lot more money having their people engaged in whatever it is that their business did. Okay. So that’s great.
So everybody was happy. Here’s the problem. The company, my client, was just adding on, let’s say, 20% to the cost of that laptop, flat. They weren’t tracking their time. They didn’t have people put in time sheets for precisely what they were doing, so, they weren’t realizing, they weren’t putting together that it cost a person, it took one of their technicians five hours, to do that type of work. And at $175 an hour, you get the point. They thought they were going to make 20%, $200, but they were spending, whatever that works out to, $900, outfitting the laptop so it could be resold.
So, it’s really interesting. That business had been going for a number of years, it wasn’t very old, but, and they had taken on these new business lines, and there wasn’t a continuous thought of ‘What is our profit for every single one of these things that we’re doing? And how do we know that?’ We can make assumptions, but unless we have that data intact, in our system, and we can pull it out easily, we won’t know how much it costs.
One of the objectives of this, is to make sure that we have the correct pricing for the business lines, but we also want to make sure that we know how much profit we’re making per company. Sometimes, you know, the 80/20 rule, you’re spending 80% of your time servicing 20% of the customers. There are times when this very often happens, that a client may end up costing your business more money than you’re bringing in.
And that brings up all kinds of other opportunities, such as pricing. There’s different packages that can be brought on board. If a client is happy with the business, they’re going to stick with your business. It’s a matter of making sure that we see what we have and knowing the profit that we’re making, knowing how much time we’re spending. Having a complete look, complete understanding of our business and the profits that we’re making incrementally, within our business.
Clearly, that’s one of the things that we do, encourage you to give us a call. We’ll spend half an hour, 45 minutes chatting about your business. We can essentially guarantee that you’ll walk away with at least one good, if not great, idea.
So, give us a call, Merager Financial Solutions. We find out what the story of your books really is. And how to bring more profits into your company, stop unnecessary spending, and make your life such that you know more about your business.
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