Matrix Key: Financial Viability – Profitability – Estimating and Pricing
“And when is there time to remember, to sift, to weigh, to estimate, to total?” – Tillie Olsen
Within the Financial Viability quadrant of the WholeLife Matrix we have included a section on the importance of an Estimating and Pricing System. As any good bargain shopper will attest, it pays to know what things cost in the marketplace, and what it will cost you to source materials to produce your product. Your production cost doesn’t include just materials either…time is an equally precious commodity. You must have a clear understanding of your costs and be able to accurately estimate them if you want to be profitable.
The four requirements of an estimating/pricing system are:
1. You must have estimates for time and material
2. You must be able to compare estimates to actual results
3. There must be a system to track the percentages of time and materials used
4. There must be a system to deal with significant variances from your estimates
If your business is not as profitable as you think it could be, review your systems for the four above principles. An accurate cost accounting system will help you determine your gross profit margin, track your expenses, and calculate your net profit. Estimating and pricing take time, but the potential savings can show up as big wins on your bottom line.
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