Although it is not a perfect paradigm, Porter’s Value Chain has helped explained how a company can create value since it was devised in 1985.
Source: Wikimedia Commons.
According to this diagram, the activities that add value to a product or service can be divided in ‘primary activities’ and ‘support activities’. These (should) add value so then the difference between the price and the cost make up the margin the company makes: YOUR PROFIT. And you should now that a customer buys your product or uses your service because the value s/he receives (or perceives) is higher than the price.
So, would you be able to obtain a higher price if the perceived value was higher? Alternatively, if the cost was lower and so was the price, would you increase your sales? Wouldn’t be your profit higher if the cost was lower without affecting the perceived value?
As you see, a powerful tool. However, you need to start analysing your supply (value) chain and look for improvements. Some management techniques might help (i.e. Six Sigma, Just-in-Time), but could mean spending a lot of money when there are lower profile alternatives than an SMB can make use of: and apply them with a simple spreadsheet! Ask us how.