Multiple Profit Pictures for Visionary Decision-Makers
Your CFO and your accountant would describe profit margin as the difference between all revenue and all expenses. That’s factually correct. It’s also a HUGE mistake for you to think there’s only one profit picture for you to look at.
There are three benefits of having multiple pictures of profits margins:
1) When you separate each line of business, or offerings (products and services) and evaluate them individually in terms of profit margin, the disparate value of each one will be unmistakable. Why is this important? Because you will then invest in the best offerings and make appropriate decisions about the rest. Never, ever stop with a consolodated profit picture. This is the time to go deep.
2) Analyze the profit margin per employee per line of business? This is far more beneficial than simply looking at revenue per employee per line of business. Revenue might be high for a line that is costly or low where revenue per sale is limited because of competition and the nature of the product/service. When you create a profit margin picture of revenue per employee per line of business you see where the true value of your business comes from. This leads to decisions that will further increase your profit margin from those lines.
3) Formulate your strategy and create the appropriate implementation plan first. Then assess your offerings to see which of them does two things: allows you achieve your strategy and also generate high profit margins. If you do the reverse—fit your strategy and implementation to your offerings—you will miss the benefits and financial gains of formulating your strategy and making plans to implement it.
When you see that some offerings generate low or insufficient profit margins, you can plan to eliminate them. You can create new offerings that achive your strategy and generate high profit margins. The congruence of your offerings with your strategy will be apparent to every employee and every customer.
If these seems like common sense, you’re right, they are. Yet it’s easy to overlook common sense in the hub-bub of every day demands and the pressures caused by the trends of the day. I work with my clients to discover opportunities that are hidden in plain sight and to increase their profit margins with high revenue, lower-cost, exceptional offerings. This is the epitome of maximizing growth and opportunity.