Cash Flow: Revenue (Actual, Part 3)- Differentiate Products
July 27th, 2009
Copyright © 2009 Integrated Profitability TM
This is the third article on increasing revenue to improve Cash Flow. The first article in the series covered selling more, the second focusing on pricing opportunities. This article concentrates on tweaking your products and product line to generate opportunities to potentially expand sales, increase prices and/or improve profit margin.
● Differentiating Product offerings
Depending upon your business, you might be able to make small differentiations that naturally encourage customers to buy more. Ever notice at coffee shops and fast food places how the drinks are priced? The small one is priced at $x.xx and then each larger size above is a small fraction higher. How many times do you buy the biggest one because it’s “only 15 cents” more? You don’t need the bigger drink, but it is such a good deal.
Assuming the price of the smallest drink is higher than the cost of the largest drink, this type of pricing makes a lot of sense, for both profitability and especially cash flow. That is: the price of the smallest drink is more than the cost of the beverage in all the sizes. So, if somebody buys the smallest drink, you have the greatest profit margin. If somebody buys the largest drink, you have the greatest cash flow. Either size, you win.
Got Cash Flow? (Part 2 of 2)
July 20th, 2009
Copyright © 2009 Integrated Profitability TM
In the article before our regular blogging got interrupted with “Breaking News” (“Got Cash Flow? (Part 1 of 2)”), revenue and expense information was gathered in order to figure your company’s cash flow. For revenues and expenses, the method of payment was highlighted because it provides insight into ways to improve cash flow. Here is what the table of information might look like:
|
Payment Method |
Revenue ($) |
Rev (%) |
Expense ($) |
Exp (%) |
| Cash | ||||
| Debit Card | ||||
| Pay Pal (or similar) | ||||
| Check | ||||
| Credit Card | ||||
| Government Programs | ||||
| Invoice | ||||
| I.O.U. / Promissory Note | ||||
| Other (describe) | ||||
| Other (describe) | ||||
|
Totals |
($) |
(%) |
($) |
(%) |
The order of the “payment method” is from immediate-cash to much-later-cash. For your business, fill the chart in, adding and taking away payment categories to fit the way your company operates. As you fill in the information, jot down estimates of how long each payment method takes to convert to cash. For revenues, that is how long you are financing (carrying) your customers. For expenses, that is how long your suppliers and creditors are financing you.
As you compile these numbers, do you notice any changes happening over time? Unfortunately, the time it takes revenue to convert to cash naturally increases, while the time it takes expenses to be paid in cash decreases. If both of these trends are happening in your business, your cash flow is getting doubly squeezed. If your cash flow is getting squeezed too hard, let’s talk.
In the meantime, here’s a generic approach to assessing the state of your company’s Cash Flow:
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