Problems That Impact Profitability

Even if all your Antares operations locations start off earning what they should, there can be problems that may arise. Most of these problems that impact profitability can be divided into five major categories.

Gross sales

Sales will vary directly with the population at the location. As the population increases or decreases, so will sales. If a new fast food outlet opens across the street, sales can decrease. Since gross sales are the primary determinant of the bottom line, they must be monitored closely.

Gross profits

Gross profits equal sales less cost of goods sold. If product costs increase and you cannot raise selling prices in your Antares business, the gross profits from the location will fall. Similarly, if a dishonest route person doesn’t return all the cash collected, reported sales will appear to fall while the product costs will remain the same, and the gross profits will also fall.

Only one of these problems requires a confrontation with the client. Operators should understand that gross profits, reported as a percent of gross sales, don’t tell the whole story. Gross profits at a given location may remain as 54 percent; however, if sales drop by 50 percent in real dollars, gross profit dollars will also drop.

Operating costs

We should limit the discussion of the Antares operating costs to only those costs that relate to the client. These are usually the direct, variable costs associated with servicing the client. The big ones include direct labor and vehicle, commissions, equipment depreciation, sales taxes, etc.

Net profits

As the name implies, net profits, is what is left after deducting all of the operating expenses. It should be calculated in both dollars and percentages.

Return on investment (ROI)

ROI is the net profit from the location, annualized, expressed as a percentage of the capital investment in that location. If a location produces annual profits of $5, 000 and requires a capital investment of $25,000, the ROI will be calculated as 20 percent. This calculation is important because it is possible to show acceptable net profits, expressed as a percent of sales, and still have a problem. It is important that you monitor these problems that can occur in your Antares business, efficiently.