Steven runs a small manufacturing business with his team. His business growth was rapid in the first few years to £4m turnover, sales were beginning to plateau. Unfortunately, Steven hadn’t obtained patent rights to one of his key products when he started out. He knew the business needed to invest and develop its next range of products in order to remain competitive. As their leading competitor had recently launched a similar product. However, without the business growth Steven knew the business wouldn’t bring in enough profit or cash to be able to invest in developing this new product range in the time frame needed.
Steven felt pressure to grow quickly and he invested in external sales training for his sales team, to grow the business. As a result, he could clearly see an increase in sales and customers. Yet as the business started to grow, Steven had neglected the financial aspect of his business. He found that although sales were increasing, profitability was not.
At our annual business performance review, it was clear from a discussion that Steven was making bad decisions around pricing because he did not have access to meaningful numbers to help him with those decisions.
As a result of that discussion, Steven agreed to a full product and customer profitability analysis. Once complete, he was then able to quickly assess which products and customers were making a profit and most surprisingly to Steven which products were making a loss.
With this information Steven began a program of renegotiating prices and explored discontinuing unprofitable product lines. He also refocused his sales team on the customers and products with the higher profit margins, maximizing the business returns.
Steven now feels in control of his business and as a result of having timely and accurate information. He increased business profit by £40k within 6months, is on track to reach his profitability goals and has enough cash to invest in developing his new product range securing the business’ future.
Having seen the impact of making pricing decisions based on hard facts instead of gut feel, Steven has insisted the business formally reviews its product and customer profitability on a regular basis. Five year on and he has increased profit and cash flow through this process by £400k.
Interestingly, as a result of increasing the focus on pricing, his team has become even more motivated to create value for clients, resulting in a true win-win situation.
Many businesses face the same issues, irrespective of the industry in which they operate. If you think you have potential to increase your profit or cash, then let’s connect and start a conversation.