This is by far the powerful tool in your financial tool box. Using conventional accounting methods will provide you with gross margins, which leads to profitability, but without the ability to identify the highest margin products and/or services or customers.

Also it calibrates your break even point with far greater accuracy.

Show Objective Given a contracting economy with diminishing business opportunities and inflation devaluing the currency, create a new "TO BE" process and use it to establish best practices for each process and achieve Lowest Cost Producer in your market.

EPISODE 61: ​Summary

In order for a process to generate a good margin and contribute to profitability, all costs need to be identified and assigned to the correct step. This is required to identify a product or service's full cost, variable and fixed, and embed into each step of the process. There is no other way except guessing to answer the most fundamental question - does the output of this process, whether it is a product or service, have sufficient margin to make it profitable?

Topics:

• Every major process must a visual map - both internal and external. Economies, improvements, reduction in steps in every process has been identified and the map updated.
• Understand all costs - fixed costs (like power, rent, office staff etc) and variable costs (materials, labor, equipment maintenance).
• Working forward each step has a margin assigned. When completed has does the final number compare to the price?
• Hint: the best companies in the service sector are operating at 40+ margins. Determine whether you need more process improvements to alter the price?