Unknown product profit margins created unreliable financial information
Unreliable financial information and unknown margins. A rapidly growing brewery had limited to no internal accounting function. The financial information they did have was not reliable, profit margins were unknown, and no inventory system was in place. A custom margin analysis was necessary for the brewery to grow and scale their business.
Signature Analytics’ Solution:
We calculated the proper COGS for each product line. A custom margin analysis was necessary for the brewery to grow and scale their business. The first step was to understand and calculate the cost of goods sold (COGS) for each product line (in this case, by type of brew). This process includes understanding all costs associated with each product, including personnel and packaging costs.
We then matched COGS with the sale of the product to analyze profit margins. We compared the COGS to the sales price of each product line. Doing so provided insight as to which product lines were more profitable than others. It allowed management to adjust their pricing and distribution strategies to focus on higher-margin products, thus increasing the brewery’s overall profitability.
ROI: Increased Profits by 15%
The brewery changed its pricing and distribution strategies based on product margin analysis, increasing overall margins and profits by 15%. Knowing and understanding this information allowed the brewery’s management to adjust their pricing and distribution strategies to focus on higher-margin products, thus increasing overall profitability.
Best Practices for Profit Margin Analysis
- Know your profit margins by individual product line–not just overall company revenues–in order to
- Adjust pricing and distribution strategies based on product margins
- Focus your marketing and promotional efforts on more profitable products
- Calculate the appropriate cost of acquiring a customer (CAC)