CEO Mastery : Product and Customer Profitability Analysis

Video transcript: hi this is brian with CEO mastery where for the last 20 years we’ve been helping ceos go from successful to exceptional there’s a system for that and we help you with it anyway I’m headed to the office to get some things this is the middle of the kovat coronavirus quarantine ii time and strange times for sure a lot of companies are you know at a standstill some are doing okay and some are actually thriving kind of depends with business here in but for those of you who have some extra time and you’re worried about the future and want to position yourself for it i highly suggest that you do a product line profitability analysis or product analysis or customer profitability analysis see the problem is is if we just look at gross margin which is either for cost for manufacturing and distribution cost of goods sold after cost of goods sold or for service companies after they direct cost of providing the services so if we look at that gross profit line it doesn’t tell us the whole story we think we’re making a 40% margin on something but we may not or we think well we’re at least we’re getting a 25% margin but maybe not the reason that that number is not entirely accurate and can in some cases be incredibly misleading is that there are a lot of indirect costs you know below the gross profit line there’s all those operating expenses and those are considered kind of fixed overhead but the fact is that some of those are actually variable depending on the product or on the customer so a customer typically a very hard to work with customer that demands a lot of extra attention and trips and samples and god knows what that cost is down below you don’t see that in gross profit so you need to identify within there all the costs that relate to delivering the product or the service that you know one would think of being above the gross profit line but actually those costs are below they’re hidden and I’ve had numerous occasions where I’ve worked with companies we’ve gone through their products we’ve gone through the customers and we find flat out losers these are products that are losing the company money and the beautiful thing about that is one it’s a sad shock but the beautiful thing is you can make money by just not selling them anything because every time you sell something you lose money now what you’re trying to do is you’re trying to get with you if you do that with all your products you have some kind of a hurdle rate so in other words your your overhead costs your operating costs down below some of those are truly fixed they don’t really very much a little bit I mean if you doubled your company they would go up but generally speaking they’re they’re unattributable and allocable costs and if that is let’s say twenty five percent of sales and it then you want to have at least a 25% margin on each product or each customer active after allocating everything that you can to it because if not then that customer or product is not contributing to your fixed overhead and worse yet of course if it doesn’t cover your over it might not cover it at all and therefore it might be just a complete loss so anyway if you want to find out more click below on the link give me a call send me an email but just just keep that in mind and now is a good time to do that and to narrow your customers and your products to those that truly make sense profitability wise and then to maybe find more like that which is kind of a strategy thing I’ll talk about but the best place to find great products and customers is in the ones you already have and then model the ones that are winners so alright well I hope that’s helpful and log on to CEO mastery net or big six boot camp dot-com if you want more information and I’ll check back with you later be well