When was the last time you took some time to analyze the profit on individual parts of your business?
You may typically get financial reports on the performance of your business at the end of each month, quarter and annually. They let you know the overall total picture. When the bottom line is black it is better than it being red. We would all like more in the positive column.
The bigger question is – have you taken the time to look at individual profit centers or product lines to see how the sales to profit align? Have you looked at the revenues to costs by individual client performance?
Too often, leaders look at the global picture and continue business as usual. Unfortunately, if you want the overall bottom line to grow, sometimes you need to eliminate those product lines or customers who are placing a drain on your profitability.
Take for example a customer who in theory is in the middle of your customer base spending a typical annual amount that you view as a “Good” account. They are not in your top 20% generating 80% of your revenues but the account contributes dollars. From purely a sales and revenue side they are a good account.
If you look deeper into the details of the account and what they are buying from you, it might come to light that they are buying mostly your lost leader products with lower margin and cost you more dollars to produce, deliver and take the time navigating the customer satisfaction value. This same customer might just be the one that is always complaining to their sales rep about pricing and delivery time etc. and the net value to your organization is far less than it should be. This same account which you thought was good is taking time and resources away form better performing accounts which generate a higher value to your business.
This view of customers is equally applicable to the products and services you offer. The proper mix of higher margin products and services along with the proper alignment of best value customers can add dollars directly to the bottom line and potentially free up resources to grow the business even more.
This week start to look at the various products and customer accounts to see how they actually perform vs. how you think they contribute.
Wondering how to go about this analysis? Give JKL Associates a call at 313-527-7945 and let’s have a meaningful conversation.