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A Thing Analyze Your Way to Profits


FYI for ISOs


    Have you ever stopped to figure out what your profit margin is on the different services you offer? Even though it might seem obvious that your profit equals the selling price or residual income, minus your time and direct office costs of your staff, a more realistic view includes the cost of making the sale. And, in many cases, the cost of making a sale may vary from one service or product to another.

     To figure your total costs, try dividing costs into three categories.

* Direct-selling costs, such as the cost of a sales repís time and expenses

* Indirect costs, such as the cost of providing clerical support, printing support materials, or equipment costs

* General company expenses, such as taxes, administrative costs, and interest on debt

     To further refine your analysis of profits, try categorizing your products or services according to the markets you serve. For example, an ISO who offers various payment services may receive ongoing compensation in one case, a flat fee in another, and may have a high margin on yet a third but must make an investment that the others do not have. Or, if you market nationally, try dividing your market by geographic region, to see if your offices, or downstream market tiers, all have the same cost-to-benefit relationship.

     Once you have divided costs and services by type, create a row-and-column chart, with types of expenses down the side and market types along the top. Tally up the direct and indirect costs of sales to each market, adding on the general company expenses in each category. By comparing these totals and subtracting them from the revenue gained in each market type, you gain an accurate picture of which market or service is most profitable to you.

     After you carry out the above analysis, you may find ways to cut costs. For example, you might find that your phone expenses are surprisingly high, or that you had not taken into account hidden expenses, such as the cost of a copier or fax machine lease. Are travel costs through the roof? Is one customer eating away at your time and profitability?

     Once you know the facts, you can take whatever specific action seems appropriate. Donít assume that cost cutting by itself will bring the desired results. Itís a mistake to focus strictly on reducing costs while ignoring revenue-generating promotion and advertising. Cut the fat, if you can find it, but donít ignore ways to increase revenues. Both methods will enhance your profitability.

     And by all means, pay attention to any possible cost assistance, such as lead generation, telemarketing, or service provider paid contests. The real value is based on how much do you have to do, how much will the other guy do, and for how long can you expect to be paid.

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