How to Identify Which Units of Service Are Your Profit Powerhouses
Not all business is profitable business and not all customers are good customers, but you know that already. So how can you figure out which one of your service units is your most profitable one? Follow the steps below:
1. Separate out the revenue by unit of service. It’s impossible to tell which service is making money if you lump all your revenue together. Simply not possible!
2. Separate out costs by the same unit of service. This means:
· Think through each step in the process of producing and delivering the unit of service
· Put a corresponding $ value to each of those steps
3. To complete the preliminary financial analysis, record:
· # of units sold
· Net profit by unit
· Net profit by volume
· Net profit %
· Time it takes to produce 1 unit
4. To get a feel for how you can accomplish this first part of the analysis, check out the profitability quiz (and examples) below:
Now that you have the basic data in hand, look a little deeper.
5. Be honest --- consider all expenses, don’t use rose colored glasses, best case scenarios or excuse away problems. If you consider it a loss leader, is it really? Can you show what business it is generating for you? If you think of it as a marketing expense – where and when is the direct pay-off?
What are the other issues that are related to the product? Rate each unit of service further using the following scale, with 1 being difficult and 5 being wonderfully easy:
Hopefully the original data analysis, plus your rating will provide your team with lots to discuss. If a unit of service is not as profitable as you thought, how can you improve it?
The trick here is to collect the data and evaluate it honestly. You might decide to tweak the product or drop it. You will know what to do when the facts are in front of you.
You work hard and deserve to make a good profit. Set yourself up to accomplish that by maximizing your profitable services and minimizing your less profitable ones.
Let us know how we can help.