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Profitability analysis

A fundamental question for every business; “Where do we make money and where are we losing it?”

Answering this question is important, but of itself not enough – knowing what drives profitability and how to change it is the essential element that enables you to improve. The AdvisorBase profitability analysis not only delivers analysis on profitability by:

By customer

By product

By customer by product

By product by customer

… it also identifies what drives profitability in each area.

Profitability analysis can be a daunting task, there are so many interdependencies. For example, changing pack size (say 24 to 12 per case) has multiple effects:

Production packaging costs change

Warehouse handling costs change for less than full pallet orders – eliminating those expensive less than case picks … but more cases per pallet increases cost of less than full pallet picks.

Freight costs may change, depending on contract structure.

A small order quantity market may open up, leading to many small, high cost to serve orders.

… do you know the real cost of new product development?

Our approach is to:

1.

Understand which product and customer combinations make or lose money – to understand the current business.

2.

Understand what makes each of the product and customer combinations profitable, or not - to understand the drives of profit for the business.

3.

Use a scenario model to test initiatives that may improve profitability, initiatives such as:

 

Dropping or enhancing product lines

 

Changing route to market, changing how business is done with each channel or customer group

 

Limiting or expanding the territories served

 

Including or excluding third party distributors from the supply chain

 

Re-locating distribution centres.

Profitability analysis can be undertaken as an in-house coached project or a face-to-face conventional consulting project.