Cost of sales too high

[downhill racer]

Over the last several months our cost of sales have not been generating the turnover we need. They include site staff, construction materials and travel/vans costs.

The company has never really invested much time in analysis and reporting on these costs.

Can anyone give me some advice on the process we should adopt here to work out exactly why this might be happening.

TIA.

 

[AllUpHere]

What do you mean by cost of sales not generating turnover? Seems a strange way to describe the problem.

 

[downhill racer]

.

 

[downhill racer]

Should have been more clear. We have employees working on construction sites and over the last 6 months or so the value of work generated by their activities has not been high enough to generate profit. I suspect it's because of covid etc. We need to start analysing this so we can take some action to reverse the trend.

 

[AllUpHere]

In it's simplest form, they aren't doing enough work, or you aren't charging enough for the work they do. There aren't that many other possibilities.

 

[Lucan Unlordly]

Should have been more clear. We have employees working on construction sites and over the last 6 months or so the value of work generated by their activities has not been high enough to generate profit. I suspect it's because of covid etc. We need to start analysing this so we can take some action to reverse the trend.

It's easy enough to take on business that looks profitable at first glance, only to find out later that it's not, and should be easy enough to work out where your pricing has gone wrong. Pen, paper, calculator!

We've been guilty of buying something at rock bottom price, making what we thought was a good margin until we realised it was costing more to send than we'd budgeted for, took longer to pack, had far too many damages etc., Often the things you guesstimate that come back and bite you.

 

[Mr D]

If cost of sales is too high then change the figures.
Change income or change costs. Perhaps both.

If cannot change anything then stop getting that work.

 

[Deleted member 335660]

Over the last several months our cost of sales have not been generating the turnover we need. They include site staff, construction materials and travel/vans costs.

The company has never really invested much time in analysis and reporting on these costs.

Can anyone give me some advice on the process we should adopt here to work out exactly why this might be happening.

TIA.

I guess it hope you have some formulae for pricing a job. Customer says I want you to build a wall so your formulae gives a price based on hours materials and other costs. Clearly you need to revise that formula.

 

[STDFR33]

You need to analyse the costs.

Are your costa too high? Which ones are too high? Why are they too high?

Have you factored in all your costs and a profit margin when pricing jobs?

If Covid has affected your work, I.e need more subcontractors, have you factored this into your pricing?

Unfortunately, nobody can give you the answer. You need to go back through individual jobs and look at the price charged and the costs incurred.

 

[MBE2017]

The company has never really invested much time in analysis and reporting on these costs.

Can anyone give me some advice on the process we should adopt here to work out exactly why this might be happening.

TIA.

The company needs to address this ASAP. You could be under estimating the costs involved, you could have a reduction in work, lazy employees, or a lack of sales. Either way you have a major problem, I always wonder how such companies ever get the business let alone stay in business when I see posts like these.

Someone in your company should be able to tell you exactly where the problem(s) are, so it can be addressed ASAP.

 

[Spur Support Services]

You really need to seek help from your accountant to see if they can help produce project/management reports and dashboards to report on the key data.

It will depend on your accounting software on how much cost analysis you can perform within the software as it stands.

You really need to decide, whether you need more granularity in the data that is being collected, to really dig into the margins and productivity, which might indicate that you need a better project costing system (take care to chose a solution that integrates with your main accounting software). However, note that those sort of systems will primarily be useful going forward and not so much with the retrospective review.

Alternatively, you may just need some better financial reports to be designed to give you more clarity on the information already held in the system.

Chances are that in a perfect world you need a combination of both.

If you have a good accountant, then they should be more than happy to offer you assistance with this value added service.