What is Cost of Goods Sold exactly? Cost of Goods Sold includes all the direct costs of selling your particular product. For example, it includes the cost of the product itself, freight to get the product to your store as well as the costs of damaged or missing stock. It will also include wages that contribute to producing your product.
There are businesses in many industries that will live and die passed on their performance in the cost of goods sold arena. Businesses in the building industry are a good example of this. Even though this area of your business is a major cost area, it can also be an area where you can significantly reduce costs. Even a 1% decrease in Cost of Goods Sold can make a large difference.
Following are a sample things to look at when reducing your Cost of Goods Sold:
- Become a member of a buying group or buy your stock or supplies in bulk – approach suppliers for a deal but ensure buying in bulk doesn’t keep your stock on the shelf too long and affect the expiration of the product.
- Understand discount terms and determine if it is in your favour to use them.
- Monitor wastage – recycle, or sell waste products.
- Monitor stock and conduct stocktakes to ensure you are monitor obsolete stocks.
- Look into your storage costs – are you using your space effectively, or do you need to order less more frequently to save on rent
- Transport – look at location of stored items and various methods and ways to transport your goods.
- Look at your production process – clear bottlenecks and look at ways to make the production more efficient.
- Quality Control – is the cheaper product actually costing you more in repairs? What products do your competitors use?
- Products – do you have the right product selection? Do you know the profit margins on your different product lines? Are you selling more of the most profitable items?
There are so many ways to reduce your Cost of Good Sold, that the above items are just the tip of the iceberg. Reducing your Cost of Goods Sold can make a huge difference to you bottom line and to your lifestyle, so it is worth putting the time in to review this in detail.
Want more information? Email a business advisor at PJT, or call 07 5413 9300.