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Gain Profit In Business By Lowering Manufacturing Cost < Business Articles By Mast Business Directory

Business is concerned with buying and selling of products, goods and services. The main aim or goal of business is to earn profit. How would you earn profit in business? Earning profit in business is only possible when you sell products or goods at a price higher than its cost price. What is cost price? Before selling your product, you might have bought it or manufactured it? Buying price of the product involved here will be the cost price. Or you might have manufactured the product in your unit. In that case, all the expenses involved in manufacturing the product(including raw material) will be its cost price. While you are manufacturing the product it will not be easy to calculate the final cost. Suppose you are in clothing business and manufacture jeans and t-shirts. Then possible expenses could be raw material(cloth), sewing(paying to tailors), labels, zipper, buttons, rivets, printing or dying expenses(if involved), factory or workplace rent, sales office rent, electricity, water, marketing and advertising and more. By just guessing the expenses involved, you can't really set the selling price of your final product. Also you need to check for market price for similar or same products because if cost price is higher than market price it will be difficult to make sales. What is market price? Market price is the average price of similar items sold in the niche market.

Before starting any business understanding the market price is very important. This is because products usually don't get sold if your selling prices are higher than the market prices. Customers usually try the whole market before they buy anything, so it will not be easy to convince them to buy at higher prices unless otherwise your product have some unique features or look. Whatever your business niche is, understanding the market rates and fluctuations is most important. Once you thoroughly understood the market, it will be easier to judge whether manufacturing cost involved is lower enough to give profit in your business. I should warn you to start manufacturing anything before trying the market rates. If you need to know the market prices, jump into different shops as a buyer. After studying the whole market, you can calculate the manufacturing cost of your product. But as I said earlier, just by guessing it will be difficult to obtain the actual manufacturing cost.

Most important is raw material. You should be aware which raw material is needed for your product manufacturing and where you can find the cheapest raw material to minimize your manufacturing cost. But at the same time you need to make sure quality of raw material is good. Its an important decision to take, when you decide to buy raw material for your product manufacturing. Suppose rubber is your raw material. Three largest producing countries of rubber are Indonesia, Malaysia and Thailand. Now its a fact, you can obtain the cheapest rubber from these countries only, as these are the major source or you can say birth place of rubber. So a businessman may even import raw material from other countries to minimize the manufacturing cost. If you are buying your raw material locally or from within your own country, while your competitor is importing the raw material from the source country(where the prices are lowest), it will not be possible for you to compete in the local market due to higher manufacturing cost. So keeping an eye on competitors is very important for your business growth and to avoid business failure.

Also when you buy in bulk quantity, it will cost you less. So companies engaged in large scale production can lower their manufacturing cost by purchasing raw material in bulk. You need to have funds for big investments in business. An individual or partners cannot arrange for huge funds required in large scale production. That is the reason stock listed companies are more successful in business than sole proprietorship and partnership firms. Stock listed companies are the companies which issue shares to collect funds from the general public. So public is the major source of funds for them. Public buy shares of such companies as they share the profit in company's overall income which is often called as dividend. In other words, shareholders earn dividend every year which gives a good reason for them to invest in company shares. So its not wise to compete in the niche market where stock listed companies are selling products in their brand name. However you will not face such competition while you are running a small business in odd niche.

Other than raw material, few more things which could bring expenses in the manufacturing process are like employee wages, machinery, workplace and sales office rent, electricity charges, transportation etc. Such expenses you can easily estimate and will not make much difference while you are calculating the overall manufacturing cost but of course each and every expense will be counted. As an alternative, you can use an expense management software for more precise expense calculations. Things like machinery, furniture, rent etc are fixed assets in your business and only require one time investment or a monthly or yearly investment but prices doesn't vary much making it easier for you to estimate the cost. So before launching your business, you must have complete idea about the market prices and manufacturing cost of your product.

Manufacturing cost can also be lowered by making use of imported machines which produce more items in less time. Some home country machines have less efficiency and require lot of maintenance expenses. You need to make sure what machines your competitors are using. It may be they have imported their machines from some other country which are more efficient. This will make lot of difference, so you need to consider this fact in your business to gain more profit. Efficiency of employees is also an important factor to lower manufacturing cost. Hire only those employees who are more efficient and well experienced. Make use of employment agencies to find good workers. An experienced worker will never make mistakes which in turn will give delivery on time with quality production.

Location of your office is also an important factor to consider when you are planning to increase sales in your business. If your office is located in the niche market itself, more new customers can reach you. Old and repeated customers may just order from you on phone but when you are looking to increase sales, finding new customers is must. Whether you are planning to buy a new office or need on rent, make sure its located somewhere in the middle of the niche market itself. Its still wise to pay more for an office located in the niche market as location is important for your business to get settled. Better business location is also one of the ways to win over your competitors.

Customer satisfaction is another important factor to increase sales in business. Use surveys with your customers. They aren't an original concept, but when used properly, they are as effective as ever. The purpose of a survey is not to have bragging rights! It is to learn ways to improve your product or service which you haven't already considered. Honesty is the key here, but it can be uncomfortable for customers to be honest about making suggestions, and things they like about your competitors. Ask them! Good questions to consider: How many OTHER companies like your have they hired in the past? What were their favorite things about them? What were your least favorite things? What are the best things about your company? What would you like to see us do differently if you were required to make a suggestion? What are things that you feel differentiate us from our competitors? What are things that you feel are very similar? (Good or bad?).

Call your competitor. Chances are, he'd like to talk to you, too! If not, then you have one up on him: You'll get something out of the conversation, when he may not have the forethought to do the same. Introduce yourself, tell him where your business is, and suggest that you work together when the situation arises that one or the other of you is unable to help a customer. A dynamic in which competitors not only compete, but also work collaboratively, increases profitability. You can't pretend that competition doesn't exist. It is competition which makes us better at what we do. Good luck to you, and go get 'em!!

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