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Important and Discretionary Expenses

By: Anthony Silvestri
Posted: August 29, 2011, from the September 2011 issue of Skin Inc. magazine.

In order to realize and maintain financial success in your skin care business, it is crucial to examine your important and discretionary expenses, and search for room to reduce them. Set expense-reduction goals, then seek out methods for reduction. Based on the rank identifier and whether or not cuts can be implemented, you will start to see where cuts are possible.

Instead of looking at the amount of money spent for each type, convert it to a percentage of revenue earned. If you see that advertising equals 25% of the revenue earned, you can set a reduction in place by limiting advertising to 10–15% of revenue earned. Rank expenses as important or discretionary. Then, using the percentage identifier, calculate the percentage of spending for each type.

Expense ÷ revenue earned = expense percentage

With this complete, you can begin your analysis and set reduction goals by expense type and rank.

Important expenses. This includes products for retail sales, paid advertising, discount offers and free product samples.