Identifying the drivers behind the profitability of your business – and maximising their impact -  is  key to its future prosperity. 

In my last post  we looked at the bigger picture – the broader areas of your business that harbour its primary profit drivers. Now it’s time for me to take on the mantle of performance coach once again, and examine in more depth just how you identify those vital drivers. 

1. Sales

You must understand in detail which products, customers and sales people generate you the greatest profits and why. Are they realising their full potential? If not, why not? The sales, turnover and margin profit drivers to put under the microscope are:

• Product and or service mix
• Customer profiles and mix
• Region or area performance  

2. Margin

As with sales you should know in detail which products, customers and sales people generate you the greatest profits and why. How you can improve margins without damaging customer relations and sales?  The key margin profit drivers to analyse are:

• Individual products and/or services
• The cost structure
• Market Strategy – low margin / high volume or high margin / low volume
• Credit policy – the true cost of offering credit           

3. Operations

Are your production and distribution people making the most profitable use of the resources they have? Are they doing it that way just because they always have?  Now is the time to get into lean processing in a big way. The operations profit drivers you should focus on are:

• Cycle times and product mix
• Material costs
• Operating expenses 

4. Overheads

What if you got your overheads down to less than 10 per cent of sales? Now is the time to rethink your business model. Harness the power of technology to outsource all those activities that are not core to the business, do not add value and for which the customer doesn’t want to pay. Check out these overhead profit drivers:

• Space utilisation
• Head count / productivity
• Operating expenses

5. Finance

Money may be cheap at the moment but for how much longer? Will there be enough available to fund your future growth?  Make the money in the business work harder – it all adds to the bottom line and sends a clear message to all your stakeholders about the importance of good financial management. The financial profit drivers you should look at are:

• Borrowings and bank charges
• Working capital controls
• Cash-flow management
• Credit strategy  

If you would like more information on how to tap into the power of Profit Drivers and join the What If Profit Driver Programme email me richard.bosworth@whatifspecialist.com.  You can also follow @richardwhatif on Twitter and find me on LinkedIn under Richard Bosworth.