Streetwise — Digging Deeper Into Profit
From our friends at Eure Consulting
Most people understand that in order to stay in business, a company needs to make more money than it spends. A simple concept. But what actually goes into making a profit is not as easily understood.
Having a clear understanding of your company’s profit design takes knowing more than just how much money is coming in the door and how much is going out. In fact, there are 12 different elements that make up a well thought out profit design. And each one needs to be revisited on a regular basis.
The 12 elements are:
- Value Proposition: What value you offer your customers.
- Customer Intelligence: Informed awareness of who your customers are and what they want.
- Scope: The range of the products or services that you offer.
- Business Development: The fusion of targeting, capturing, and caring for your customer.
- Strategic Control: The unique power of your company’s offerings.
- Strategic Allies: Specific external partners engaged to expand sales.
- Knowledge Management: The manner in which a company leverages its unique knowledge and skills.
- Culture: The landscape and focus of the human workplace community.
- Organizational Structure: Being able to organize people so that they can successfully complete tasks.
- Operating Systems: The support structure for critical enterprise processes.
- Research and Development: The continual discovery of solutions to your customers’ needs.
- Capital Intensity: A measure of your company’s required financial resources. Both in your current state and for future opportunities.
Each of these elements play a part in how your company makes and keeps money. As you grow, different elements take on more significance, which is why each area should be reexamined on a regular basis to make sure that you are in fact still profitable.
Let’s use Operating Systems as an example. If your company has recently doubled in size, jumping from 20 employees to 40, the processes you were using at the size of 20 people will need to be completely revisited. If you ignore them and just assume that they will still work for a company of 40, you’ll end up with frustrated employees, poor performance, and a lack of productivity. All three will cause a big hit to your bottom line.
Make sure that you are intentional about your plans for each of the areas of profit design. Take the time to understand them and revisit them on a regular basis. Don’t lose profits because you weren’t detailed enough in your planning.