Know Thy Costs and Manage the ‘Creepers’

How will my landlord's proposed rent increase impact my net profit? Can I afford to hire that new salesperson? What do I need to do in sales in order to hit my target profit? How much do I need to increase my prices in order to cover any new expense item? What do these questions have in common? Each relates to how changes in costs, volume, and pricing affect your bottom line. For example, suppose we posed the question: "If your costs go up $1,000, what do you have to make in increased sales just to stay even?" Far too many times, the answer is "$1,000" ... and that's a bad sign. Last time we shared a visual concept called the Cup Theory to help give you a picture of how dollars flow through your company. The theory illustrated what's left over after variable costs to cover fixed costs and contribute to net profits. This month we'll talk more about those costs and give you a wonderful
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