Small-Business Success Comes From Understanding Product Profitability

Many small business owners lack a fundamental understanding of how their operation makes -- or doesn't maket -- a profit. We tend to look at the profit-and-loss statement from too high a level.

The key is to truly understanding how your business works and its capabilities for generating more revenue and profit is to get down in the weeds to develop a deep understanding of the cost structure of each product sold, says Dick Harrington, former CEO of Thompson Corp., in an insightful interview at Harvard Business Publishing, Do You Really Know Where You Make Your Money?
But isn't such product review a difficult process? Says Harrington:

"Not quite; you can categorize products. And if you're small, you can estimate and be approximately correct. For example, if one product is consuming all your customer support resources, you want to account for it. But for small changes in floor space usage, for example, you probably don't need to factor that in. Being approximately correct is good enough; you don't need to have perfect information to make the right decision."