Assessing your profit and loss figures on a monthly basis is one of the most important steps you can take to stay fiscally fit, according to Steven LeFever, chairman, Business Resource Services, Seattle, Wash. In his “Pricing and Profitability” seminar on Wednesday.
Several hundred jewelers packed a conference room to hear the former commercial banker discuss the importance of knowing your fixed and variable costs and contribution margins, or, as LeFever says, “what’s left.”
A “break-even analysis” formula can help jewelers gauge changes in costs as they relate to pricing. LeFever explained the formula through the “Cup Theory:” Excess variable costs (sales dollars) spill over to cover fixed costs (contribution margin) that trickle down to the net profit cup. “Jewelers can increase profits by closely monitoring fixed and variable costs, selling more product, and/or raising prices,” LeFever explained. This type of analysis also can help determine the sales volume necessary to maintain a certain level of profit.
LeFever also recommended double-checking your calculations and reviewing total investment dollars and desired return on investment, to analyze potential expansion plans.