We’ve highlighted how compiling and analysing data is key to strategic planning which will unearth the success factors which are critical to your business thriving and surviving.
As a business strategist and executive coach who has boosted the effectiveness and bottom line of a select group of owner managed and family run businesses by £110m, I can vouch that interrogating, challenging and analysing your financial figures can uncover a wealth of information about the true profit drivers of your company.
The true profit drivers are those that make the business real money, and reveal where you need to focus your improvement efforts. It’s not just about which products and services are the most profitable.
Your investigation needs to look at which of your salespeople generate the greatest profitability – not just the most sales – and ensure your operations consistently invest the right effort behind your profit drivers to deliver the best and most competitive .products and services.
How to Identify Your Profit Drivers
Ask your financial people to provide you with a list of the products and services by sales and gross margin for the year to date period – and then identify the top 20 per cent which generate the greatest gross profit. Do the same for the previous financial year and for five years ago. Conducting this exercise will give you a picture of what is happening.
Do the same with your customers. Stop wasting time on unprofitable customers and established which ones have generated the greatest gross profits during the current financial year to date, last year and five years ago. You will often discover is that it is not your top selling products and services or your largest customers that are your profit drivers. A vital question to ask yourself is – how much stronger would your bottom line be if you devoted more time and effort to developing the sales of your profit drivers?
What Influences Your Profit Drivers?
Again have your financial people look at the gross margin of each salesperson, year to date, last year and five years ago. As with the example above, it may well be that your top salespeople are not the profit drivers.
A further refinement is to analyse gross margin per customer by salesperson and see how the profit driving sales people achieve their levels of performance. This will also highlight changes required to your sales incentive programmes to maximise your profit drivers.
Ways to Contain Profit Driver Costs
Task your finance team with analysing the operating costs associated with your profit driver products and services – and ask your operations people whether these costs can be lowered, if so by how much and how soon. You may also want to consider implementing a lean project to eliminate all kinds of waste and improving the chances for success of the profit drivers.
For help in unearthing your company’s critical success factors and profit drivers, contact me below, e-mail me via firstname.lastname@example.org, go to @richardwhatif on Twitter, Richard Bosworth on LinkedIn or post on www.whatifforums.com.