Big data has received a lot of attention in the last several years. The idea is that large amounts of data are analyzed to deliver insights that drive business improvement. In many cases, analysis of big data has delivered insights that lead to better business decisions.
But, what if you simply don’t have “big data” or the ability to analyze it? Analyzing even a small amount of data can bring actionable insights. And, nowhere is it more rewarding than analyzing data for profit management. Businesses are losing billions of dollars every year through undetected margin leaks and the inability to see what is actually driving profit margins. Under-priced products, shifts in product or customer mix, lagging price adjustments to rising costs or a sales rep selling on price are common causes of margin leaks. Couple these with a lack of visibility to the primary profit drivers of price, cost, mix and volume and you’ve soon lost control of profitability.
However, analyzing even small amounts of data that are relatively easy to access for most companies can put you back in control. Start with sales invoice data. Accessing part numbers, units purchased, price, customer identification, freight charges and location coupled with some cost data provides a solid foundation for analysis. Cost data can be limited to variable costs. Some manufacturers may struggle to allocate fixed costs but even applying variable costs will provide enough data for comparisons to be valuable.
Using the data listed above provides a great foundation to create the following analyses…
- Identifying negative margin transactions
- Discounted or waived freight charges
- Customer profitability analysis-Identify highest/lowest profit accounts
- Identifying low margin transactions for remediation
- Targeting customers that are underpriced
- Small accounts getting low prices
- Measuring price increase initiatives-What is the success rate?
- See which customers are impacting mix the most
- Isolate price, cost, mix and volume and finally get reliable measurement
If you have access to sales invoice data and some basic cost data you have the foundation for actionable profit analysis. Capturing even one or two margin points is a significant gain in profitability. As one CEO said, “You’ll be surprised at what you will learn about your business.”
To learn more about taking control of profitability, contact PricePoint Partners and ask about Acuity Analytics.