Are some products/service or customer groups keeping you too busy for your good?
It is important to have a very serious look at the revenue stream. Most enterprises never have a product-wise P&L, therefore do not realize that they may, in fact, be using up too much of organizational time, effort and money on a product or a service that is not as profitable as they thought it to be or that some customer segments that use their products or service may be too resource intensive to be serviced profitably at the current pricing levels. Most entrepreneurs consider maintaining a product-wise P & L as too much effort and this action may be making their company look busy and hardworking, consequently delivering products that they must not be focusing on. Sometimes an unprofitable product is retained on the list because it was the product that the company began with or because the business owner has invested a lot of emotional energy in taking it to the market. Being emotional doesn’t work well for the business. This aspect is valid even in case of a single product business.
It is important to separate the expenses that can be allocated to the product and the overhead costs of managing a business enterprise. Managing the cost of the product and managing costs of the enterprise should be looked at separately, although all revenue is generated from a single product. The efficiencies/inefficiencies may come either from how the cost of the product is managed or how the cost of running the enterprise is managed, or both.
It is important to separate the expenses that can be allocated to the product and the overhead costs of managing a business enterprise. Managing the cost of the product and managing costs of the enterprise should be looked at separately, although all revenue is generated from a single product. The efficiencies/inefficiencies may come either from how the cost of the product is managed or how the cost of running the enterprise is managed, or both.
It is easier to have a P&L for a product than for a service. Costing the time spent on a service is not easy; this makes it harder to determine whether we are individually profitable in each of the services the enterprise delivers and how some fastidious customer segments may keep us very busy for relatively low returns.
The next blog will take a look at the interplay of the “Structure – System – Staff” and the Role of the Chief Entrepreneurial Officer (Biz owner) and the need to align them for optimal delivery.
Photo Courtesy: Stefano Vallei, FreeDigitalPhotos.net
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