6 Quick Strategies to Lower Your Cost of Goods Sold (COGS)

If you would rather watch the video on this, you can watch it here: How to Lower Cost of Goods Sold

High COGS Impacting Your Profits

High COGS can severely eat into your gross profit, making it challenging to cover your overhead and generate net profit. If you’re spending too much on materials, labor, and other production costs, it’s time to take action.

Six Strategies to Lower Your COGS

• Understand Margin Pricing: Margin pricing ensures you’re charging the right price to achieve your desired profit margin. For instance, if your COGS is $175 and you want a 35% profit margin, divide $175 by (1 - 0.35), which gives you a selling price of $269.23. This ensures you meet your profit goals accurately.
• Audit Your Current Suppliers and Vendors: Regularly review and negotiate with your suppliers to get the best prices. Ask for discounts, better financing terms, or other perks. Don’t be afraid to switch suppliers if you find better deals elsewhere.
• Confront Supplier Price Increases: Small incremental price increases from suppliers can have a big impact on your profits. Get quotes from competitors and ask your current suppliers to match them. Most will, to keep your business.
• Keep Your Returns In Check: Monitor your return rate and investigate the reasons behind them. Whether it’s defective parts or employee errors, address the root cause to reduce returns. Demand credits from suppliers for defective parts and improve employee training if necessary.
• Reduce Scrap: Scrap costs you in materials, labor, and missed opportunities. Investigate the causes and seek compensation from suppliers if due to defective parts. Ensure employees are well-trained and involve them in finding ways to minimize scrap.
• Limit Excess Inventory: Excess inventory ties up capital and space. Conduct regular inventory audits, clear out obsolete items, and consider a just-in-time (JIT) production system to minimize carrying costs.

Start by assessing which of these strategies will have the most immediate impact on your business. Create an action plan to audit suppliers, review pricing strategies, and manage inventory more effectively. Implementing even a few of these changes can lead to significant savings.

The Cost of Inaction

Ignoring high COGS can lead to reduced profitability, limited cash flow, and even threaten the sustainability of your business. It’s crucial to address these issues proactively.

The Benefits of Lower COGS

By lowering your COGS, you’ll increase your gross profit, improve cash flow, and gain a competitive edge in the market. This allows you to invest in growth and innovation, ensuring long-term success.

Start Reducing Your COGS Today

Which strategy will you start with to reduce your COGS? Implement these tips and watch your profits grow. If you have any questions or need further assistance, feel free to reach out. Let’s take your business to the next level together!

If you want to dive deeper on this, I did a video: How to Lower Cost of Goods Sold