Every small business has its payment and pricing mistakes. Fixing these small errors could increase your profitability by 20 percent.
The Secret to Boosting Profits by 20 Percent
No company can run a perfect operation. The challenge is to minimize the cost to your business of the errors that occur. A common mistake that many companies make is miscalculating the amount of money to collect from customers. A recent study indicates that on average companies lose about $10,000 for every $1 million in revenues due to avoidable pricing errors. For a small business generating $10 million in sales at a 5 percent pre-tax profit margin, correcting these errors could boost profitability by 20 percent.
Does putting an extra $100,000 in your pocket interest you? If so read on.
Companies misprice what they sell for a number of reasons. Conducting business with large customers has become increasingly complex, with many performance and time-based variables that impact the final price that you receive for your goods or services. With each customer negotiating a separate contract, it’s easy to make mistakes regarding which terms apply to which customers and under what conditions. Many small businesses are so busy trying to win new business and fulfill orders that once an invoice goes out, they stop thinking about that order and focus on the dozens of other items that need to get done. Without a good process to ensure that the invoice is correct, small mistakes can accumulate and snowball into serious amounts of money.
5 Most Common Errors
There are several common types of errors that lead to lost revenue:
- Unit cost errors. These errors include: differences in invoice pricing versus purchase order pricing; extending temporary price discounts beyond the discount window; and failure to update pricing in your computer system.
- Promotions and markdown errors. These errors include: using the wrong formula to calculate a discount price promotion; using the wrong date to calculate the discount; and offering discounts on items that do not qualify for a discount.
- Point of sale errors. These errors include: inappropriately calculating instant rebates at the customer point of sale and errors in calculating the proper pricing and terms on consignment sales
- Shipping and receiving errors. These errors include: being charged late shipment penalties for shipments arriving on time; incorrectly being charged freight on returns; not receiving early shipment bonus; and more.
- Payment errors. These errors include: being paid the prepaid price for products that are not prepaid; early payment deductions taken on payments not arriving early; not being paid interest for payments arriving late; and more.
Who is Mike Periu?
Mike Periu is the President of Proximo, LLC, a company that markets education and training programs to small business owners, entrepreneurs and consumers.
Mike Periu has been interviewed over 500 times for broadcasters including CNN, NBC TVE, RTE and others. Mike is a contributing author to OpenForum, Yahoo! Finanzas and the Huffington Post.
Mike graduated from Georgetown University in Washington, DC. His degrees are in Finance and International Business. In addition to his work Mike is also on the Board of the Council for Economic Education.
