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Cost analysis and revenue analysis analyze the inputs and factors that impact the mix of products and services companies provide, procurement practices, resource utilization, sales and marketing efforts, and product and service delivery. SpotOn Financial provides this information in a streamlined simple report
To understand how SpotOn Financial and our network of experts and professionals can help you. We must first understand what we are doing and why it is important for you and your business. Let's discuss what costs and revenue are, and then why understanding them is critical to your business.
Companies incur costs in many ways. Costs result from the production of goods, the purchase of inventory, the operating of the business, and the purchase of assets. These costs include the fixed and variable costs associated with production, depreciation and investment costs, and general and administrative costs. Costs also include opportunity costs, sunk costs and marginal costs. Cost analysis identifies and investigates the sources and components of these costs. Cost analysis has several different names, including cost allocation, cost-benefit analysis and cost-effectiveness analysis.
Cost analysis helps a company determine the expected costs and benefits of a particular asset, new product, or plan of action before it makes the requisite investment. An in-depth cost analysis can reveal hidden costs embedded in a company's normal way of doing business and the unanticipated costs of certain actions. Identifying and then stripping out costs can help a company increase its profitability and long-term viability. Cost analysis also aids companies in changing their service and product delivery procedures to those that are more cost-efficient and effective.
Companies generate revenues from sales of their products and services. To generate more revenues, companies can increase the prices of existing products and services, offer add-on services for an additional price, or introduce new products or services at a higher price point. Companies can also increase revenues by increasing the quantity sold. Firms accomplish this by lowering prices or increasing their marketing efforts to stimulate demand.
Revenue analysis helps companies determine how to increase their revenues significantly. When combined with cost analysis, it helps companies do this while keeping costs at a minimum. Revenue analysis aids companies in assessing which course of action produces the highest increase in revenue with the least effort. For example, a company determines that it takes a series of press releases, website testimonials, and well-placed classified ads to drastically increase sales of a particular product, but it also determines that adding a low-cost add-on to a higher priced service would have the same effect.
The break-even point for a product or service occurs when revenue generated by the product equals the costs incurred in producing, selling and delivering the product. Break-even analysis blends cost and revenue analysis to help companies determine if a new product or service makes financial sense. While companies may focus solely on cost analysis for the purpose of cost reduction, most companies use revenue analysis combined with cost analysis to choose the revenue option that produces the most profit.
Customers impact your cost and revenue curve and at any given time, they can be rising above or dropping below the ideal arc. Below SpotOn Financial has outlined the segmented revenue analysis reports we can offer your business.
Peter Drucker once said, “What gets measured, gets managed.” SpotOn Financial believes in the same philosophy. Many of our clients after working with us develop habits that have built and expanded successful small businesses. One of those key traits we develop is cost containment. When we talk to clients about cost containment many think we are talking about lowering a light bill or reducing customer churn. We agree those are cost containment measures, but what we really want our clients to focus on is the cost of customer acquisition, cost of service and support, and cost of retention. Those costs are hidden variables that are often overlooked in business plans and pushed to the back burner of a businesses daily operations.
Literally out of signt-out of mind! We urge our clients to know when they should fire a customer or when it's time to update a website or hire a new marketer. When you ignore these cost centers you directly and indirectly impact your sales revenue profits.
When analyzing your cost centers and revenue streams it requires constant attention. You cannot take your eye of the ball. When you don't have a CFO or Operations manager who does this for you? Understanding your revenue and cost are key to your success. SpotOn Financial can help you.
An immediate benefit of the customer revenue analysis is that it allows you to track revenue by customer rather than the units sold. This is an important factor to keep in mind, as you might find some of your customers only purchase products when they’re on sale, therefore generating far less revenue than sales on products at list price. The customer ranking should take into account the customer revenue analysis so that customer profitability is part of their ranking. SpotOn Financial helps your business understand the value of a customer rather than just that of widget. The oppposite can also be said, we help you know what a costly customer can be and help you get those bad apples out of your bunch!
Another way form analysis that could be used is by comparing an individual customer to the “average customer,” and the sources of those average customers within the same ranking. This points out which of your customers it pays to give attention as well as focus your efforts on those indirect sources. What is the average customer ?How is that customer coming to you? It 's not enough to say you get great customers from Facebook when you get profitable cusomers from your local business network. Facebook is great but is Facebook generating profitable customers ? How are you measuring that profitability. This analysis allows your business to see the traits and uncover trends of the customers’ revenue generated in total, by ranking, and for an individual customer by indirect sources.
A sales revenue analysis is a breakdown that allows your business to see how the business is performing in comparison to previous years, and estimate how it should perform in the future. The sales revenue analysis shows which products are generating more revenue for the firm in any given time frame. The time frame could use historical data for trend analysis or projected estimates. These projections can offer your business key insights, including when it’s generating more revenue in some months than others throughout the year. These trends could move in cyclical, seasonal or monthly trends, depending on your industry of course.
It is extremely beneficial to pull these trends on an annual, monthly or even daily basis if possible. This will greatly assist in reviewing estimated versus actual revenue.
Putting together a payment trend analysis for customers also has its share of benefits, including capturing days sales outstanding (DSO) and payment trends. The sales person and finance department should have this information available to make credit, payment terms, and order shipping decisions. This analysis could easily highlight a high volume customer that usually pays 15 days late. This system should organize, categorize, and report the data so that tracking DSO, aging invoices, and high-risk clients is automatic. With a system in place, you can be proactive in your collections process and improve cash flow. You will no longer need to ask: What invoices are late and how much money is owed by aging category? How often are customers contacted directly about unpaid invoices? What percentages of your customers pay on time. SpotOn Financial can help you create this reports, establish these protocols and even finance the technology if needed to take your company to the next level of success tomorrow, today!
What is Marketing ROI, and How Do Companies Use It?
Marketing ROI is exactly what it sounds like: a way of measuring the return on investment from the amount a company spends on marketing. Avery explains that it is also referred to by its acronym, MROI, or as return on marketing investment (ROMI). It can be used to assess the return of a specific marketing program, or the firm’s overall marketing mix.
Marketing ROI is a straightforward return-on-investment calculation. In its simplest form, it looks like this:
MROI=(Incremental Financial Value -Cost of Marketing Investment)
Total Cost of Investment
Since marketing expenditures tie up capital, managers may also wish to include the opportunity costs associated with this spending, taking into account the company’s cost of capital in their calculations. The incremental financial value attributable to marketing derives from its ability to increase customer loyalty and reduce customer churn. In this case, managers need to measure how much profit was retained that would have been lost without the marketing program.” Another challenge is measuring the lag time associated with most marketing spending is another common challenge. If you spend $1 today, it might take three years for the marketing to “work” and for the consumer to make a purchase, especially with products, like cars, that are purchased less frequently.
SpotOn Financial can help you determine your target marekting ROI, we can create a path that improves your profitability while reducing customer churn and improviing loyalty. Our client typically use our Marketing ROI analysis when considering business funding opportunities. If you understand how you are going to get the ROI and then you can understand the value of the funding you will receive, or business planning you do.
SpotOn Financial can help you with a team of professionals to help you understand your cost models, develop cost containment measures, and create clear return on investment dollars that are measureable and and predictable. We can start today!
SpotOn Financial is a financial services brokerage that can provide a business access to financing, business protection products, and expert advice. Let's Plan Your Brighter Future, Together.
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