Understanding the key drivers in your business is a key success factor. Many businesses offer multiple products/services and each of these carries different costs and pricing. All of us can identify the direct costs (i.e. raw materials, wages, etc.) and compare that to the sales price. In accounting lingo we call this the gross margin.
Successful businesses take this a step further and determine what overheads need to be applied to items sold to identify the true profit margin on each product. Costs like rent, management salaries, and insurance should be analyzed and allocated to the products and services that a company offers. A simple example of this involves insurance, some services disproportionately affect insurance costs occasionally a business sells services at a loss once overheads are properly allocated. Understanding how these items fit together is complicated and a trained professional can assist you with this.
At Kent Accounting we have helped many clients understand what products/services truly contribute to their bottom line enabling them to maximize their financial reward.