The slightest variations in product price can lead to a massive difference in operating profitability for a horticultural business, a leading consultant has suggested.
Alistair Dryburgh of Akenhurst Consultants asked a recent audience of GIMA members: “Your business may have had a really good year, but do you wonder why you are not making more profit?”
He cited research that showed a one per cent increase in average prices leads to an 11 per cent increase in operating profit; a one per cent reduction in variable costs leads to a 7.3 per cent increase in operating profit; a one per cent increase in sales volume leads to a 3.7 per cent increase in operating profit; and a one per cent reduction in fixed costs leads to a 2.7 per cent increase in operating profit.
Dryburgh also warned against cost plus pricing policies, and challenged supplier businesses to ask themselves whether they have the same price list for all customers or whether they segment the market, whether they have similar margins on all products and whether they are bound by budgets.
He also posed the question: if a staff member produced a bright idea costing an unbudgeted £10,000 but which could earn 10 times that in the first year, would it see the light of day?
