Businesses excel at creating new products or service lines, but don’t often act quickly enough to shed poor performing offerings. As long as sales are being made, the business keeps the underperforming products around.
Low profitability products and services take internal resources (materials, equipment and labor) away from higher performing offerings. These materials do not deliver their profit potential or force the owner to turn away more profitable sales due to lack of capacity.
Your sales personnel waste energy and time selling minimally profitable products as they only have visibility and are incentivized to top line revenue numbers.
Actions you can take:
- Review the contribution margin (revenue less cost of materials and labor) of each product or service
- Consider whether your legacy offerings still fit your brand and service philosophy
- Identify whether low profitability offerings should be eliminated, upgraded (add value to offering and increase price) or produced in a different way (lower cost to improve profit)
- Meet with your salespeople to explain each product’s profitability and change sales incentives to focus on profitability instead of revenue
Coming up next month: Inventory management
Wishing you continued success and growth this month!