What is considered efficiency?
Posted: Mon Jan 06, 2025 6:56 am
Operating profit gives us an idea of how much we earned from selling a product, taking into account the costs necessary to make the sale.
Based on marginal and operating profit, relative profitability and markup indicators are calculated. Profitability shows what percentage of revenue remains at our disposal after the sale. Markup is the same, but in comparison with purchase prices (cost of goods sold).
It would seem that we can rank products by denmark whatsapp phone number markup and see which products bring us the highest return on the ruble invested in them. If the markup is higher, then the earnings are higher. This is the product that should be focused on first.
However, there are factors that can change the whole picture :
Time factor. There is a big difference between earning 20% in a week or in a year.
Ownership of capital. There is a big difference between earning 20% on your money and earning the same amount without investing a penny of your own money.
Volume factor. 500% markup sounds great, but if your maximum achievable sales volume (e.g. market capacity) is estimated at 1000 rubles, then perhaps you should look for some other products and niches, albeit with a smaller markup.
To effectively manage capital and get the most out of our available resources, we need to somehow digitize the influence of these factors.
When we talk about return on capital, any person who understands finance will suggest using "RO-something". For example, ROI is return on investment, ROA is return on assets, ROE is return on equity or something similar.
However, most of these indicators are high-level. These are "average temperatures in the hospital". They are difficult to use when calculating the economics of individual goods, categories, and distribution channels.
To calculate the return on invested ruble at the level of individual goods or categories, it is necessary to understand how many of these same rubles are actually invested in these goods or categories.
From the point of view of product movement, each product begins its journey from the moment of purchase from the supplier (or placing an order for production). Then it goes through the logistics stage to our warehouse. Then it is stored for some time in our and other warehouses / store shelves and is ultimately sold to the buyer.
In terms of cash flow, this is the path from paying the supplier to receiving the money from the buyers (sometimes the latter happens before the former). The length of this route is called the length of the financial cycle.
Based on marginal and operating profit, relative profitability and markup indicators are calculated. Profitability shows what percentage of revenue remains at our disposal after the sale. Markup is the same, but in comparison with purchase prices (cost of goods sold).
It would seem that we can rank products by denmark whatsapp phone number markup and see which products bring us the highest return on the ruble invested in them. If the markup is higher, then the earnings are higher. This is the product that should be focused on first.
However, there are factors that can change the whole picture :
Time factor. There is a big difference between earning 20% in a week or in a year.
Ownership of capital. There is a big difference between earning 20% on your money and earning the same amount without investing a penny of your own money.
Volume factor. 500% markup sounds great, but if your maximum achievable sales volume (e.g. market capacity) is estimated at 1000 rubles, then perhaps you should look for some other products and niches, albeit with a smaller markup.
To effectively manage capital and get the most out of our available resources, we need to somehow digitize the influence of these factors.
When we talk about return on capital, any person who understands finance will suggest using "RO-something". For example, ROI is return on investment, ROA is return on assets, ROE is return on equity or something similar.
However, most of these indicators are high-level. These are "average temperatures in the hospital". They are difficult to use when calculating the economics of individual goods, categories, and distribution channels.
To calculate the return on invested ruble at the level of individual goods or categories, it is necessary to understand how many of these same rubles are actually invested in these goods or categories.
From the point of view of product movement, each product begins its journey from the moment of purchase from the supplier (or placing an order for production). Then it goes through the logistics stage to our warehouse. Then it is stored for some time in our and other warehouses / store shelves and is ultimately sold to the buyer.
In terms of cash flow, this is the path from paying the supplier to receiving the money from the buyers (sometimes the latter happens before the former). The length of this route is called the length of the financial cycle.