Strategy 2: Reduce your cost of goods sold
This strategy complements the first strategy ‘get your pricing right’. The gross profit margin is
the difference between the price you sell your product for and the price you paid for it.
Increasing the margin between the two will increase your profit and your cash flow. There are
two ways to increase your gross profit margin: increase your price (as discussed in strategy 1)
and/or decrease the cost of goods sold. The cost of goods sold is the cost of the product to you
that was sold to your customers.
Examples of ways to reduce your costs of goods sold:
Negotiate with your suppliers for a better price if you buy in bulk. Only use this strategy if you
can turn over the stock quickly.
Negotiate with your suppliers for a discount if you pay early if there isn’t a discount already in
place.
Shop around with other suppliers to ensure you are getting the best value (this is not
necessarily the best price).
Purchase new equipment or implement new processes to produce the goods more efficiently.
www.CashFlowStrategies.com.au
© Copyright 2010 by Scott Richards of Beyond the Numbers
www.BeyondtheNumbers.com.au
