In every business market, there is a governing factor called supply and demand. Each market has a demand and there is a certain supply required to meet that demand. When the supply is sufficient to meet the demand, you have equilibrium. If the supply fails to meet the demand, you have a shortage. And when the supply is greater than the demand, you have a surplus.
It’s easy to see the disadvantage of a shortage, but having a surplus can be just as damaging to a business. It doesn’t help you if you have a bunch of inventory that isn’t selling. That means that you aren’t maximizing your profits by selling off everything you have. You need to stay on top of your sales in order to calculate what, if any, surplus you may have.
One way to do this is to extrapolate your figures out by individual transactions. This way you can see exactly how much you are selling in each transaction and where the problems in your approach may lie. If one segment of your customer base is buying more of an item than another, then perhaps you need to rethink which items you are marketing where.
If you have a surplus of an item, then what can you do to off load it? Perhaps you’ll have to consider reducing prices, making customers more likely to buy or even increasing the amount sold in each specific transaction. This way you can even out your inventory and reach the equilibrium level again.
The types of calculations you’ll need to do to figure out your surplus involve multiplying the amount sold by the price per item. This will give you an indication of how much you’re making per transaction and how likely you are to be left with a surplus when selling your product at its current price.
This will then allow you to determine if changes need to be made in order to offset the surplus. You may need to reduce the unit price or offer that particular item in a multiple unit sale, such as a two for the price of one. It can also help you to better focus your marketing approach in order to attract potential customers or bring back current customers.
Knowing where you stand in terms of sales is essential but it can be off putting for many SME owners, who may feel lost when it comes to these kind of financial gymnastics. But if you want to keep your profits up and avoid falling into the surplus trap, then you need to bite the bullet and do your bookkeeping so that you remain in control of your business.
So what’s the owner of an SME to do when calculating that surplus gets away from you? Why not consult with a business coach who is trained to handle the ins and outs of running a business, including calculating surplus per transaction. You don’t have to go it alone…let me help you figure out exactly what your profits and losses are so that you can make your business a success.
Awhimai is a business coach and consultant passionate about women in business and leadership. Find out more at www.awhimai.nz andwww.iwahine.nz
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