This edition focuses on the quickest way to boost business performance, one that always works, for every business I have seen in 25 years of consulting and mentoring.
It is deceptively simple but there are hidden pitfalls, so I will show you howe to avoid them, so that the strategy works for you.
The quickest way to boost business performance is to stop doing the things that don't make a profit, and do more of the things that do.
The benefits seem obvious: more time and resources to devote to profitable activity and space in the business to fill with profitable work.
Where are the pitfalls? Here a just a few.
How do you know which customers or market segments make a positive contribution to overheads and net profit?
How do you know which products or services consume more resources than they are worth?
How can you be sure that quitting one customer, product or segment will not have a negative flow on effect on the profitable remainder.
To make good decisions on these critical questions you need a decision model that you can rely on.
The model has to show you which customers, market segments, products or services make a positive contribution to your net profit line.
A model you can rely on will show you the linkages and relationships between revenues, costs and your asset utilization.
Your model should be unique to your business; you can start with a generic model but you will have to adapt it to your specific mode of operation. After all, if everyone used the same model everyone would find the same strategy, and there is no competitive advantage in that.
There is only one type of model that will do this properly; I call it a KPI model, purists would call it a “Dupont Disaggregation model”, but let’s keep it simple.
An example from my casebook; sacking customers to turn around a losing business.
My first management job was sales manager for a plastic moulding business. We made components for other businesses for their dies. The business lost $250,000 the previous year and my job was to turn that loss into a profit.
The problem was that our costing system was a mess. In 1969 calculators were replacing slide rules and computers were still a dream in a small business. I started costing every production run and the results were all over the place.
I tried to negotiate price increases for the biggest losers and my customers said “NO. What a silly idea.” It rapidly became clear that a one-by–one approach would not work.
For some reason I decided to cost all the work we did for a customer, starting with the ones who created the biggest disruption to our system. I found that if we lost money on one job we lost money on nearly everything we did for that customer.
My strategy changed. I told the customer that we wanted them to find another supplier. In one month’s time we would deliver all their dies back to them. They panicked. They offered me price increases. I told them that no price increase would compensate for the disruption to our production. I told them politely that they were sacked.
What I found was that as I created space in our production schedules, new customers arrived with profitable work to fill it. Good profitable customers gave us more work because we could service them properly.
At the end of the second year we made $250,000 net profit. That was all the proof I needed.
Today it is easier, using a PC and Excel. A KPI model uses data from your accounting system to look at your business in a different way.
You can do scenario testing to examine alternatives.
Use the goal seek function to find out what happens to your business return if you change one aspect of your strategy.
You can test the effect of your decisions before you take a risk.
This is the best and safest way to clean up your customer list, sort out your old product lines and quit the segments that used to be good. How much of your business is past its “use by” date?
You can start today. Just buy the bizlearn tutorial in a box – “Market Segment Strategy using a KPI model.” on line and learn how to do it.
A special offer for bizlearn subscribers: Buy it before the next newsletter comes out and I will give you a money back guarantee. If you are not satisfied with the tutorial I will refund the full purchase price, as long as you tell me within 30 days.
And a bonus: If you take up this offer, I will personally support you by answering your email questions for the next 30 days. This will ensure that the get your KPI model off in the right direction. This is an unlimited offer that could make you thousands.
Act now to start on your own KPI Model. I will get your tutorial to you by email within 24 hours.
