Financial Metrics to Know for Product Based Businesses
Jul 03, 2023Owning a product-based business has unique challenges when compared to a service-based business. There are often a lot more moving parts as you have to not only work to get the product to your business, but then you also work on the other end to sell it to a consumer.
Each step often involves additional cost and finances can get a little convoluted if not properly tracked and managed. I am going to discuss some of the primary financial metrics that I think product-based businesses should be tracking to ensure adequate profitability.
The key takeaways from this episode are:
1. Gross margin is key: The gross margin is a critical metric for product-based businesses to assess profitability. It helps determine if your pricing strategy and cost structure are on the right track.
2. Analyze SKU trends over time: Tracking the performance of different product SKUs over time allows you to identify top-selling items, understand market demand, and optimize your product mix accordingly.
3. Monitor inventory turnover: Keeping a close eye on inventory turnover helps you assess the efficiency of your inventory management. Aim for a healthy turnover rate to minimize carrying costs and ensure you have the right amount of inventory to meet customer demand.
What you'll hear in this episode:
[0:50] Why product-based businesses are often more difficult to start than service-based businesses?
[2:05] Differences in financials between a product and service-based business.
[2:48] The #1 metric to determine if you are on the right track: gross margin.
[5:10] The #2 metric to determine if you are on the right track: analyzing trends of time for various SKUs.
[9:40] The #3 metric to determine if you are on the right track: inventory turnover.
Related episodes:
Questions to Ask Yourself as a CEO
Why You Want to Build a Sellable Business
Get Back In The Driver’s Seat Of Your Business Finances
Resources:
Tactical Resources:
5-Day Financial Mindset Refresh: https://www.keepwhatyouearn.com/refresh
Create a Custom Podcast Playlist: https://quiz.tryinteract.com/#/6303d4c525b1e80018d47cfa
Grow Cash Flow for Your Business: https://www.keepwhatyouearn.com/endless-cash
Tax Deduction Guide: https://www.keepwhatyouearn.com/tax-deduction-guide
CFO Power Session: Text POWER to 860-609-6374
See how much you can save with an S Corp: https://www.keepwhatyouearn.com/keep-what-you-earn-s-corp-calculator
Additional Resources & Connect with Shannon:
Find everything you need at https://www.keepwhatyouearn.com
Questions about this episode? Text me! https://my.community.com/shannonweinsteincpa
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The information contained in this podcast is intended for educational purposes only and is not individual tax advice. Please consult a qualified professional before implementing anything you learn.
