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Smart Metrics Increase Profits

To increase your profits, look at your financials on a granular level, rather than in aggregate.

Your business probably has more than one product, more than one service, and more than one revenue stream. However, if you are like most people, you typically look at your financials in aggregate. You are shown a snapshot — homogenous revenue opportunities and cost inputs. A snapshot is inadequate for drilling down and determining how you can increase profits. You need to get granular with your financials.

Start by looking at your sales figures. Look at profit by product type, region, brand, etc. Are there similarities? Differences? Outliers? By looking at your figures on this level, are you able to identify what works? Stumbling blocks? Barriers? Or do you need to drill down further? For example, is the success of a specific product a result of work by one specific team? Can that team's approach be applied elsewhere?

As you go through this exercise, it is essential to recognize that there will likely be products, regions, or brands that don't make sense. They may devour too many resources, bleed profits, or just not be the right fit for the company. Don't try to fit a square peg in a round hole. It may be time to make some hard decisions.

Once you feel you have a granular understanding of your sales figures, take action. Reduce your low-profit items, and plow the resources into higher-profit activities.

Note that this is not a one-time exercise. Get in the practice of looking at your financials on a granular level, and it is likely you will realize increased profits over time. It won't take as long as you might think.

Do you have examples that you've found in your business? Share them below in the comments.

14 comments on “Smart Metrics Increase Profits

  1. Hailey Lynne McKeefry
    August 23, 2013

    this is such a critical excercise. Many organizations carry on with activities long after they no longer make sense. I bet a bit of strategic questioning would save lots of money in the long run. It'd be interesting to try to measure it. If nothing else, there's the opportunity cost of doing whatever isn't working rather than something else.

  2. t.alex
    August 24, 2013

    I completely agree on this. It would be great to if there are ready-made tools and easy-to-adopt process to help reduce the time spent analyzing and measuring the figures.

  3. Nemos
    August 25, 2013

    “Note that this is not a one-time exercise” What exactly do you mean by that – how often ? Also I want to ask if it is advisable to apply the following even if we don't facing economical problems ?  

  4. ahdand
    August 25, 2013

    @Nemos: According to my view point, I feel there will be no risk as such when you apply within a time frame which does not have any economic issues but it will not be easy to monitor the affects it might have in such situations (in-case if it happens accidently)       

  5. SP
    August 26, 2013

    there are many companies that have their product lines being analyzing different kinds of data and making reports. These reports are extremely crucial for the senior management to take decisions.

  6. Hailey Lynne McKeefry
    August 26, 2013

    @Nemos, with any business, you have to be looking at trends constantly, every month, or even every week or day. I would think that in this competitive marketplace the “if it ain't broke, don't fix it” mentality won't work. There's always room to do better… no resting on the laurels as they say.

  7. Frank Cavallaro
    August 26, 2013

    I think Hailey has it right. There are some areas of a business that need daily metrics such as inventory flows and mfg output, others that need weekly, such as sales pipeline, and then monthly, such as your financial metrics.

  8. Houngbo_Hospice
    August 26, 2013

    @t.alex,

    Ready-made tools can never be the panacea for every company's financial analysis needs. Many companies differ in the way they function and operate.

  9. Hailey Lynne McKeefry
    August 26, 2013

    @Frank, what advice would you give in terms of being the right amount of optimistic/pessimistic/realistic? Knowing the numbers is important but so it evaluating what they mean and it woudl be tempting to, for example, shrug off a downturn when you should be reacting proactively.

  10. ahdand
    August 27, 2013

    @Hospice: Agreed since the functionality does change based upon the business process. So you cannot have a standard format for all I guess.   

  11. Frank Cavallaro
    August 27, 2013

    Hailey, great question. Put another way…when do you action the data instead of watch it. The answer is that it really depends on your business type and its typcial cycle. The benefit   to tracking critical data is that you build a historical database of your most relevant data points. When you see future data point deviating from historical, it's a sign that you need to take a closer look.

  12. Hailey Lynne McKeefry
    August 28, 2013

    @Frank, sage advice for sure. The bst part of looking at the historical information for the organization is that it is about that organization. There's a lot of stats available for the market in general but that's averages and probably less useful than looking at, as you said, what has been and is going on in the actual business.

  13. Mr. Roques
    August 28, 2013

    Its essential to a healthy business. What about activities that run across several product lines? Split it somehow? … Also what about fixed costs? 

  14. t.alex
    September 1, 2013

    Hospice_Houngbo ,

    Yes I mean if there are ready made tools and these tools can be easily customized fast to fit into individual company's needs, that would be great ! 

     

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