Gross Profit

Gross profit assesses a company's efficiency at using its labor and supplies in producing goods or
services. The metric mostly considers variable costs—that is, costs that fluctuate with the level
of output, such as:

• materials
• direct labor, assuming it is hourly or otherwise dependent on output levels
• commissions for sales staff
• credit card fees on customer purchases
• equipment, perhaps including usage-based depreciation
• utilities for the production site
• shipping

The formula for gross profit is:

Gross Profit=Revenue−Cost of Goods Sold

As generally defined, gross profit does not include fixed costs (that is, costs that must be paid
regardless of the level of output). Fixed costs include rent, advertising, insurance, salaries for
employees not directly involved in the production and office supplies.

However, it should be noted that a portion of the fixed cost is assigned to each unit of production
under absorption costing, which is required for external reporting under the generally accepted
accounting principles (GAAP). For example, if a factory produces 10,000 widgets in a given period,
and the company pays $30,000 in rent for the building, a cost of $3 would be attributed to each
widget under absorption costing.

Gross profit shouldn't be confused with operating profit, also known as earnings before interest
and tax (EBIT), which is a company's profit before interest and taxes are factored in. Operating
profit is calculated by subtracting operating expenses from gross profit.

PROBLEM:
During the COVID-19 pandemic, additional cost such as transportation for workers and sanitation
solutions are put in place.

SOLUTIONS:

• Increase Sales Volume

To improve the sales in your business, focus on the customers and shift to increasing sales
performance rather than profit. This is the first word of advice any sales experts would
give you. If you want to boost sales and don’t know how, here are 9 awesome ways to do
just that:

1. Focus on the existing customers

If you want to improve sales, you should shift your focus from attracting new customers
to making those who have already tried out your products or services to buy again and
learn how to maintain all the buyers. According to sales and marketing professionals from
LeadBridge Partners, the best sales prospects are those you have already transformed
into existing customers rather than a total stranger.

If you focus on your proven customers, you are able to increase and boost your sales
dramatically. Marketing can certainly affect the sales, but it cannot solely lead to
increased sales because you only focus on new customers and forget to maximize the
already existing customers.

2. Learn about competitors

You should analyze what the competitors offer and learn new techniques, thinking of
ways to outdo them. Competition is the challenges and an opportunity to boost your sales
especially if you use their weakness and maximize your strengths.

3. Innovation and unique products

The customers should not leave your business with some products or services but should
be fully satisfied. It is important to make the customers prefer your business to other by
maximizing on quality, unique and innovative products that can outdo similar production
the market.

4. Cultivate value
The best way to boost your sales to create and cultivate value in all ways such as staff
training increased value products among others. Creating an atmosphere of value setting
helps to attract and retain the existing customers at all seasons.

5. Build a customer service approach

Building a comprehensive resource center and customer service is a great way to give the
clients access to a diverse range of the products and services that you offer. Additionally,
you should Monitor your brands and in case of complaints, address the issues quickly in
a timely manner. The customers need to feel appreciated and welcomed to the business
always.

6. Customer relations
One way of boosting sales is through increased customer relation and maximizing on the
available customers in a genuine manner the staff should learn how to treat the
 employees in a special and appreciated ways to maintain those who have come to your
business.

7. Promotion
The promotions and marketing give the customers a great deal of existence of the
products or services in the market. In some instances, discounts give the customers the
ability to try your products. The promotion can give way to attract more customers and
at the same time maximize the number of existing users. In some instances, you can offer
free samples.

8. Marketing
Marketing is a definite way that helps to boost sales. Through marketing, the products
and services, which are unique and of high quality mainly capture the attention of
customers and in the process, make them esteemed consumers. The customers are the
only options that can help you boost the sales. Marketing can also involve rewarding of
the customers.

9. Provide credible products

Credibility is the one of the key factors that makes the customers trust and feel
comfortable with your products and services. Use techniques such as advertisements to
enhance your credibility in your sale. For example, use of customer testimonials and
online marketing aid in raising customers trust on your products. In the process, you boost
your sales.

• Lower Production/Manufacturing Costs

1. Cut Your Material Costs

The simplest way you can implement to save your manufacturing costs is to cut the
material costs. This can be done by tweaking the design of your products and utilizing all
the resources that you have. You may have chosen product components without fully
understanding the cost implications.

Opt for a simpler design and cost-saving raw materials. Try not to dispose of leftover
cardboard, paper and metal. Instead of sending them to a recycling center, think of ways
to sell them all back or reuse them to create another product.

2. Gain Control of Your Inventory & Purchases

The longer you keep your stocks, the more costs you need. Therefore, it is important to
know exactly when to resupply and make sure that you’re not getting stuck with excess
or obsolete inventory. Inventory shortages lead to backorders which require you to add
extra shipping costs
and even worse, they can lead to unsatisfied consumers. Meanwhile, overstocking can
cause decay or contamination (especially if you store perishable food items) and certainly
requires more costs such as maintenance or insurance costs.
Investing in an inventory management system will greatly assist you in saving on
manufacturing costs. The former helps you automate your inventory tracking, hence
allowing you to maintain your stock levels so easily. The latter helps you manage
purchases and procurements more efficiently, thus enabling you to easily communicate
with suppliers, create purchase orders, purchase requests and requests for quotations, as
well as Blanket orders so you can repeatedly order items in bulk over a period of time.

3. Optimize Your Employee Performance

Manufacturing employees must be able to work fast to keep pace with growing consumer
expectations. As a business owner, it is a must for you to be able to train your employees
so that they can improve their skills and productivity on the production floor. Having
qualified employees can help you minimize the turnover which leads to significant labor
cost reduction.

4. Automate Your Manual Processes

In the midst of intense competition between manufacturers, you should be able to use
technology to improve your manufacturing efficiency and productivity. You may be a little
hesitant since the use of technology such as automated solutions requires substantial
investment costs. However, implementing an automated solution will actually help you
save your operational costs in the long run.

An ERP solution helps you analyze your workflow, identify bottlenecks in production and
automate all the complex processes. From inventory monitoring, employee management,
purchasing and procurement controls to budgeting, all can be handled automatically by
the system.

5. Negotiate with Your Suppliers

Another way you can apply to save your manufacturing costs is to ask your suppliers to
reduce their prices. Before attempting any negotiation, make sure that you have always
paid your bills on time (so there will be no hard feelings between you and your suppliers).
Also, ask for reasonable price reduction.

To increase your chances of getting the right deal, try to offer larger deposits to your
suppliers. Let them know that you are considering some other good deals as well. If
they’re not willing to give you lower prices, then you should consider sourcing from
different suppliers.