In shortImproving profitability starts with finding where margin leaks along the money journey: pricing, efficiency, cost structure, or whether profit reaches cash. Once the leak is known, fixes can be ordered by impact.
Why growth doesn't always improve profit
Growth brings new customers, products and people, and each brings costs. If prices were set years ago, small orders take as much effort as large ones and new work runs on old processes, growth eats the margin.
The money journey: four places margin leaks
- Sales and pricing: have prices kept up with costs?
- Efficiency: where does work get stuck or get redone?
- Cost structure: which costs grow faster than revenue?
- Cash and metrics: does profit reach cash, and is it steered by metrics?
Typical findings
- Prices haven't followed costs: a price review and an agreed rhythm for increases.
- Small orders eat the margin: a minimum order size or a lighter service level.
- Some customers are unprofitable: rank customers by margin and growth potential.
How it's done
A profitability analysis by product, customer and function, improvements ordered by impact, and tracking of each fix. See Profitability Improvement.
FAQ
How do I know which customers are profitable?
Combine sales, margin and the work spent serving them per customer. Revenue alone doesn't tell you.
How quickly can profitability improve?
Pricing fixes often show first. Changes to processes and cost structure take longer and should be tracked monthly.