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Insight, Integrity, Inspiration

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Question 21: Have you reviewed the optimum contribution for each product or service

Ok if you are thinking… “I don’t need to know this”… I hate to break it to you but it is crucial if you are serious about your business.

What do I mean by contribution?

If you have rented a room at a clinic you have to pay for that clinic whether you use it or not. These sort of costs that stay fixed whether you do 2 sessions or twenty are called ( not surprisingly!) fixed costs.

What are all your fixed costs?

In addition to fixed costs there are costs that go up as the new of sessions ( sales) go up… for example couch roll, oils etc. These costs are called variable costs as they change depending on the number of sales made.

So if you take the sales price for each session ( say £38) less the variable cost of each session (say £3) you are left with the “contribution” of £35 for each session. Why is it called a contribution? Because it is a contribution to fixed costs. So your first sales will be making a contribution to fixed costs and when that cost is covered ( called the break even point) you start making a profit.

To work out your break-even quantity divide the total fixed assets by the contribution per session. If your total fixed costs are £700 in a month, taking the contribution per session of £35 you will need to do 20 sessions in a month just to break-even ( £7,000 / £35). It is only who you get to the 21st session in the month that you start to make a profit.

What is your break-even sales quantity?

When you have different products or services you can work out a contribution for each product or quantity and calculate the optimum contribution to cover your costs. Thus you may have a contribution per session of £45 for each hour and a half session for say aromatherapy and £35 per hour session for reflexology. Thus the contribution per hour if £35 for reflexology and £30 for aromatherapy. If you are restricted to the number of hours you can rent a room in a clinic the optimum contribution would be to maximise the reflexology sessions.

What is your optimum contribution for each product or service?

Obviously the more products and services that you have the more complex the interaction is…. but it is worth having a sense of which product optimises contribution so if you have a clash of resources you can make a better decision based on real figures.

The more information you have about your optimum contribution the better decisions you will make and the better financial results you will get.

Good luck.

Recent Posts

  • Question 1: Why are you in business
  • Question 2: What Is Your Vision
  • Question 3: What Is Your Unique Selling Proposition (USP)
  • Question 4: Is your business working to your business plan
  • Question 5: What is Your current passion
  • Question 6: Want more hours in the day
  • Question 7: What Are the Obstacles in Your Way to Achieving What you Want to Do
  • Question 8: What are you doing to Plan Your Time & Prioritise urgent & important and make sure you take action on those plans
  • Question 9: What are you doing to clear up past messes
  • Question 10: How well are you measuring and controlling the business drivers ( key business indicators) out of 10
  • Question 11: Are there trends in the niche, market or industry that are likely to give opportunities to the firm
  • Question 12: Are there trends in the niche, market or industry that are likely to provide a threat to the firm
  • Question 13: Where’s the next competitive edge for your business
  • Question 14: which of your competitors are successful and why
  • Question 15: Are you still being a copycat
  • Question 16: How Good Is Your Pitch
  • Question 17: How Flexible Is Your Business
  • Question 18: How Are You Doing
  • Question 19: Do you have a clear sales funnel
  • Question 20: What is the Best Way of Getting New Clients
  • Question 21: Have you reviewed the optimum contribution for each product or service
  • Question 22: Are You A Seller or The Long Term Trusted Partner
  • Question 23: How are you spending your time
  • Question 24: What percentage of sales are from one person
  • Question 25: How Far Have you Come
  • Question 26: What Do You Want? How Do You Know When You’ve Got It? What Do you Need To Do?
  • Question 27: How Social Are You?
  • Question 28: What are You Prepared to Give Up?
  • Question 29: Who Are You Hanging Out With?
  • Question 30: What Can you Do To Increase Your Profit?
  • Question 31: How Effective Is Your No?
  • Question 32: how scaleable is your business?
  • Question 34: How To Win in Business?
  • Question 35: Look inside
  • Question 36: Whats your money mindset?
  • Question 37: What would Richard Branson do?
  • Question 38: What’s Your Money Mindset?
  • Getting Started

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