3 Ways Financial Awareness Can Help You Profit

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We all know that managing our business finances is something we’re “supposed” to do, and it does make life easier.

But are there benefits to financial awareness other than just at tax time? Of course!

Here are 3 ways that financial awareness can help you profit :

1. Advertising decisions based on ROI are more profitable than those based purely on price.

Have you ever been approached by your local phone book or newspaper to advertise? Did you? Then you understand a little bit about ROI – return on investment. In simple terms, if your ad costs more than it brings in, you got a poor ROI; if your ad brings in more than it cost you, you got a good ROI.

When you know what your expenses are, you can calculate exactly how much you can spend to acquire a new customer. That is your “magic number”. Making advertising decisions then becomes easy : if you will be able to gain a new customer for any amount at or under that magic number, you will profit. Simple!

2. Understanding your profit margin allows you to make better decisions about suppliers and vendors, as well as distribution channels and pricing.

Very few business owners can constantly concern themselves with the pricing of their suppliers and vendors, just as they can’t constantly concern themselves with sales. All areas of the business need attention, but giving attention to the financial areas can have payoffs in others as well.

For example, did you know that there are some distribution channels and wholesale pricing models that can actually cost a business more than it brings in? Or that by increasing your price by a small amount, and eliminating one unnecessary expense, you could see a drastic increase in profit?

When you know what your real costs and profit margins are, you know how to make the costs smaller and the profits larger!

3. If you understand the full cost of some optional vendors, suppliers, or services, you may choose to invest more or less in these services dependent on the value you actually receive.

Have you ever paid full colour for a newspaper ad, only to get a lower response than your regular black and white advertisement? Do you have a second fax line that you simply don’t use? Do you get amazing customer service from your internet provider, even though they cost a little bit more than the competition?

When you can see exactly how much you’re spending on items like these, it is easy to cut the expenses that aren’t giving you enough value. It also becomes easier to invest more into the expenses that do.

So you can see, financial awareness means more than just an easier tax return. When you know your full financial situation, you can make many business decisions based on that information that will increase your returns!

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