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Make Money Grow on Trees

Make money grow on trees

Let’s go back to when you were a child. You looked up at a tree and thought… If money is made from paper and paper comes from tress, surely, I can make money grow from trees! Or maybe, you asked your parents for something extraordinarily expensive and they responded with “money doesn’t grow on trees”. We have always been told that we cannot make money grow on trees… Until now. There are a couple steps we can take in our businesses to grow dollar bills as easily as trees grow leaves.

Money Does Grow on Trees

You might be wondering at this point if we are really talking about how to make money grow on trees. Unless your company has access and uses natural capital, you probably cannot physically make money grow from trees. But we are still going to show you how to grow using what every company has. First, let’s look at a company that makes money grow on trees.

Clean Water Services is a water utility company in Oregon that faced an opportunity to make real change. Their only water source, coined the “sluggish” river, became the first river in the state to fail to meet the Clean Water Act. This Act mandated that the Clean Water Services make a change or face severe consequences. Needing to dramatically cool the discharged water from their waste management facilities, Clean Water Services faced two options. These options included either investing $102-255 million to cool the water or using nature’s own capital to cool the water at a mere $12 million.

In this case, the choice was obvious. Over the next 5 years, they would invest in planting trees to cover the river and won various EPA awards because of their successful use of natural capital. Because of their decision to go with the latter option, Clean Water Services increased their bottom line by planting trees – essentially making money grow on trees. The great thing is that if you are creative enough, you have the ability to capitalize on what is already provided. If you want to read more about this case study, click here to access it on Harvard Business Review.

If you are looking to learn how to make money grow on trees, it’s important that you have to tools to accomplish that task. Click here to download our 3 Best Tools!

How to Make Money Grow on Trees

What are some necessities required to grow a healthy tree? You need a seed, healthy soil, water, and sunshine. It’s simple! So, if it’s so simple, why do we not see that the same methodology working in our own businesses? Whether it be a business model or a person, you need an idea. You need a team surrounding you to bring the idea to fruition. Money is required to make it happen. You must continually invest in knowledge and advancing your product or service or risk getting left behind by competition. Let’s start taking your business to the next level!

Plant a Seed

First, figure out what type of tree you want to plant. This can include an idea, a person, or a business model. Apple’s seed was Steve Jobs. He had the idea and passion to revolutionize technology. Amazon converted to a subscription model and partnered with UPS to do logistics. Google took their algorithm and provided a free product for consumers while providing an advertising platform for companies.

Once you have identified what you want to do and where you want to do it, it’s important to commit to it. Remember though, it is okay to adapt as you learn what works and does not work. But, be aware that many young companies decide to pivot too quickly to prevent making a mistake and lose out on a great reward. You are missing out on an opportunity to make money grow on trees if you continue to change the type of product or service and how to deliver it every six months. Commit to your seed.

Toil Your Soil

The next step is to plan it in fertile soil. A seed is useless if it isn’t planted in nutrient-rich soil. By setting yourself up with a great foundation, you will be more likely to reap great rewards. What does this mean for you as the financial leader of your company? Have the resources, the right team, and the place that this seed would thrive. You wouldn’t plant a palm tree in Siberia.

Then, have a hyper-focused goal to reach X customers, $Y million in revenue, or enter Z more states/countries. Whatever that goal is, paint it on the walls and breathe it every second of the work day. A great leader will continue to remind and encourage the team of those goals.

You will still run into a few roadblocks while you try to toil your soil. As a financial leader, it can sometimes be frustrating when your entrepreneur chases multiple “squirrels”, losing their focus repeatedly. But thankfully, you can help guide them back onto a focused path towards success. Instead of getting annoyed, encourage them that if they focus on this one product or model, they can chase after that squirrel later. Keep in mind, your attitude toward your entrepreneur and the company’s goals will determine the level of success they achieve.

If you want to learn more about how you can be more effective in your role (and get two extra tools), click here to download the 7 Habits of Highly Effective CFOs.

make money grow on trees

Water Your Plant

You have identified your seed, planted it, but to make it grow, you need something critical in business. Cash! Cash is the blood of your company, the water to grow your company, the life-giving resource. But it is important that you measure the amount of water you are pouring on your seed before it is too late. Whether it is a sprinkle, a consistent stream, or a flash flood of cash coming into the business, the risk of pouring too much or too little can result in disaster – the death of your company. If you have ever kept and grown a plant, you know how important this balance of water is. Thankfully, there are ways to improve cash flow to help buffer a potential mistake.

To improve your cash flow as you water your plant, learn how to squeeze extra cash out of every area in your business (and get two bonus tools) by downloading the 25 Ways to Improve Cash Flow whitepaper.

Let the Sun Shine

Lastly, you need to let the sun shine and watch it grow to know when to reap the fruit. As the financial leader of your company, guide your CEO and senior management team to know when and what move to make. A great place to start is to look at the pricing of your product or service. If you want to analyze your pricing, click here to download the Pricing for Profit Inspection Guide.

make money grow on treesOther Tidbits

We have put together some tips to help your better manage the growth of your company.

  1. Develop a budget that you can consistently adhere to.
  2. Have an emergency fund to bail you out if something goes south unexpectedly. One of the biggest mistakes is exhausting all cash and depleting the reserves.
  3. Pay down any debt in the company quickly and strategically. Too much debt will strangle your ability to grow.
  4. Get referrals to build your business. In our consulting practice, we give referrals to banks and other businesses who we were not able to help ourselves. In return, they refer us clients.

Now’s the time to really think like a CFO. Download our three best tools to start speaking the CFO language and start growing your company. Make some money grow on trees!

How to Make Money Grow on Trees

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Make Money Grow on Trees

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The Trump Effect | Part 2 How to Combat Uncertainty

Uncertainty looms as we inch closer to election day on November 8, 2016. Companies are starting to bite their fingernails hoping for one result but not really knowing what to expect from any candidate.

Brandon Julio, Professor at the London Business School and co-author of “Political Uncertainty and Corporate Investment Cycles,” wrote…

“Election outcomes are relevant to corporate decisions, as they have implications for industry regulation, monetary and trade policy, taxation, and, in more extreme cases, the possible expropriation or nationalization of private firms… “

Last week, we began a discussion about how presidential elections produce uncertainty in the economy and cause business confidence to waver.

(If you haven’t read the The Trump Effect | Part 1, read it here.)

Now that we’ve analyzed how election season can bring about uncertainty and affect business confidence, let’s talk about what you can do about it.

uncertainty

Hillary vs. Trump

Just in a week, we’ve gone from three major contenders to two: Hillary Clinton and Donald Trump.

After observing hateful Tweets, continuous backbiting, and comparing one to the other, consumers, businesses, and everyone else are feeling a little hesitant. Either way, in less than 5 months the United States will have a new President.

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https://data.oecd.org/

Keri Gorman, Capital One’s Head of Small-Business Banking, claims that “now is a critical time for small businesses as the country anticipates a change in leadership and new opportunities and challenges, such as market dynamics and new regulations and tax laws, which can have a significant impact on business results.”

Throughout the past 16 years, we’ve seen 2 presidents and now 5 elections. Business confidence fluctuates fairly regularly, but it’s definitely interesting to take note that before each election, there is either a rise or dip in overall business confidence.

Duke University recently released the results of their survey of CFOs. When asked to compile 5 or so questions pertaining to politics and how it impacts their company’s morale, 61% of all CFOs surveyed responded that the upcoming election (between Trump and Clinton) are a concern for their company. There were 4 other political uncertainties that CFOs listed as concerns. Those include tax reform at 28%, minimum wage at 32%, Washington dysfunction at 54%, and proposed regulations by either party at 45%.

So what do you do in time of uncertainty?

Think

During this time, come up with potential scenarios that you might encounter during the course of an election cycle and 6 months after. This mentality of being forwarding thinking rather than historically minded results in you being more prepared for uncertainty.

The potential path is a little clearer now that we’ve narrowed it down to two primary candidates. Research each of their proposals. Read news articles from both sides to develop an unbiased view of their positions. Now, write down all of the potential opportunities and threats that could come from either candidate. Understanding what could come about out of the election will better equip you to start putting together action plans to react to either candidate.

This method can go for any uncertainty in the market. You may not know what is going to happen or who is going to be elected or what war is going to break out next, but if you identify those external environmental factors that impact your company, it will be easier to battle.

Find Opportunity in Uncertainty

 It’s only when the tide goes out that you learn who has been swimming naked. – Warren Buffett

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As elections near and uncertainty rises, you’ll see be able to see the metaphorical “tide” going out. Some will certainly feel it sooner than others.

Analogy: Think of fishing in a river that has a dam holding back water. Any changes in the water level are felt quickly by those fishing close to the dam, but the impact is felt later by those further down the river, further from the dam.

Where are you in the river?

Many of our clients are oblivious to what is occurring within their company. Companies essentially stick their head in the sand and pretend that nothing is happening until the tide goes out… Exposing that you’ve been “swimming naked”.

We want to show you the opportunities you and your company can take advantage of during a time of uncertainty or crisis.

Three opportunities that you can take advantage of are as follows:

  1. Weed the Garden
  2. Learn How to do More With Less
  3. Prepare for the Next Battle

#1 Weed the Garden

Even though uncertainty abounds, it presents an opportunity to “weed the garden”. Clean up your company so that you can react to whatever November 8, 2016 brings.

Perhaps an obvious opportunity is to get a handle on unnecessary costs such as overhead expenses. Overhead costs can easily rise with revenue, but as sales decrease often overhead stays the same.  Take a look at your overhead costs as a percent of sales and see how they compare to your most prosperous times.  If you’ve had some creep, it’s time to do some weeding.

Another place to look is people. It may seem harsh, but this is the right time to remove bad hires. You have a commitment to your people to keep your business running, so remove those people that don’t fit. When business turns around, you’ll be prepared to take on the right fit.

Last, check out products and services. Compare their profitability, and cut those that are costing you money or not highly profitable.

(Think you might have a pricing problem? Check out our Pricing for Profit Inspection Guide!)

After doing those simple things, your company is leaner and more prepared to adjust to any policy changes to come.

#2 Learn How to do More With Less

Your business will certainly benefit from increased productivity during times of uncertainty. Improving productivity is different for every business. To identify what can improve in your business operations, evaluate the following formula.

Productivity = Throughput / Resources

Determine the throughput and resources for your business.  Using the same or fewer resources to generate greater throughput will improve productivity, and therefore profitability. And with slower sales, you can find the time to evaluate your operations.

This is a useful step for multiple situations including economic crisis, uncertainty, low business confidence, etc. Create an environment where you are ready to take on whatever gets thrown at your company.

#3 Prepare for the Next Battle

What do hurricanes and wars have in common?

Well, it’s what people do when they are over. First responders to a hurricane plan for how they will do better during the next natural disaster. And the military strategizes how they will do better in the next war.

This is your time to evaluate what your company can do better when the economical, political, and financial climate is uncertain.

You may not be currently affected by the uncertainty of the election season, but remember the fishing analogy…  When you feel the effect of an event depends entirely upon where you are in the river.  If uncertainty is affecting the marketplace, it will affect your business sooner or later.  Best to be prepared.

What now?

You need to create a plan for each of the cases above. What will each case look like in regards to your financials – revenue projections, cash flow projections, etc. How much overhead can you carry in these stages? Be prepared to take necessary steps to ensure that your business is profitable and cash-positive.

Performance Indicators

Take some time to seriously evaluate Key Performance Indicators (KPIs). You’ll need to know major KPIs in your industry. Figure them out by talking to key customers, investigating competitors, and researching benchmarks. Once you have identified some KPIs, it’s time to track them. Track KPIs and analyze variances. Then you may use trend tools, what-if scenarios, and breakeven analyses. Create a plan for each stage so that you are ready to act if your KPIs indicate it’s time.

Screen Shot 2016-06-08 at 8.55.04 PMBut before you evaluate your KPIs, check to make sure you’re pricing your products or service to return yourself a profit. Download a free guide to check if you have a pricing problem and to fix it soon! It’s better to be proactive about the things you can control in uncertain times, such as the presidential election, than to find out that you’re a frog in a boiling pot. This analogy hints that with extremely slow rate of change, no sensation is felt.

By taking action, you’ll be able to maintain internal confidence because you are monitoring everything that you can to protect your company.

Moving Forward Through Election Season

Professor Julio wrote, “if an election can potentially result in a bad outcome from a firm’s perspective, the option value of waiting to invest increases, and the firm may rationally delay investment until some or all of the policy uncertainty is resolved.” Business confidence is low and that could potentially damage your company’s internal morale. As a financial leader, business leader, or owner, start capitalizing on tools such as those that focus on digital, analytic, and social. These are easy ways to prove that you’re coping with the external environment being so uncertain.

The election process is something that you cannot control (besides your vote), so control that which you can and continue to remind your team that you’re supporting them.

Last week, we offered you our Know Your Economics Worksheet in the Trump Effect | Part 1. This week, download our Pricing for Profit Inspection Guide to apply what you learned to easily discover if your company has a pricing problem. This is simple thing you can do to deal with uncertain times. Click here to get your free guide!

Pricing for Profit Inspection Guide

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Fail to Succeed

Life is full of moments, with many of those moments being failures. But each failure is an opportunity to learn from those mistakes, leading to success. It seems as we progress further into a technologically-focused society, society expects us not to fail. After all, failure means the lost of money. And nobody can afford that… But the tables have turned, and now you have to fail to succeed.

Being at the front of the flagship, pioneering the company, is a position where one is bound to experience failure. Famous-People-Who-Failed-3

Ken Jones, the director of the Wolff Center for Entrepreneurship at the University of Houston, continually tells his students to fail early and fail often. This is the primary lesson that any entrepreneur or business person should learn and accept.  Success derives from those failures.

more failures = more opportunities to learn = more likely to succeed and succeed well

Think about a foundation of a home.  Early structural engineers likely experienced plenty of failures. A strong foundation is needed to support an entire home, but if it weren’t for extensive testing to discover the perfect “formula” for building a strong foundation, then the home would be set on an unstable and potentially dangerous foundation. Failure is vital to success.

Embrace Failure

thomas edison quoteBy empowering employees through failure, the entire company has the opportunity to see positive growth. To embrace is to accept and support something (failure) willingly and enthusiastically. Each employee in an organization should fully embrace that failure leads to success. Create an atmosphere where it is okay to fail. Give your organization the freedom to fail.

Encourage Failure

Define the ability to encourage failure as the ability to stimulate development. If an organization sees failure as a development process, the training to a) recover after a mistake and b) learn from a mistake will be substantially better than if an organization neglects to see failure as a good thing.wright brothers

In their quest to build the world’s first successful airplane, Orville and Wilbur Wright experienced many “failures”.  The brothers viewed each crashed plane, broken bone, and failed test flight as simply another opportunity to figure out the right combination of variables to get their craft to sustain flight.  In fact, their data collection and analysis (i.e. “failures”) is what set them apart from others in the race to flight and, ultimately, led to their success.  Had they decided to throw in the towel because of their repeated setbacks, the world would have likely had to wait quite a bit longer for the first successful airplane.

Accept Failure

To accept failure is to fully believe that success is a by-product of failure. Mistakes happen.  How you view and recover from mistakes is the key.  If you look at each mistake as a chance to learn something new, then success will follow.

For example, say you didn’t anticipate that the economic slump would last this long.  Profits are down and cash is tight.  You made a mistake in judgment, and now you have to decide the best course to correct and learn from the mistake.  Rather than beating yourself up for not seeing the trouble coming, develop a plan to address the problem.  Find ways you can improve cash flow and act on them now.  Make a plan for how you’re going to survive until things turn around as well as a plan to keep you on track once you’re out of the woods.

Need some ideas on how to improve your cash flow?  Download our free tip sheet 25 Ways to Improve Cash Flow.

Fail to Succeed

Malcolm Gladwell explains failure simply:

Human beings sometimes falter under pressure. Pilots crash and divers drown. Under the glare of competition, basketball players cannot find the basket and golfers cannot find the pin. When that happens, we say variously that people have “panicked” or, to use the sports colloquialism, “choked.” But what do those words mean? Both are pejoratives. To choke or panic is considered to be as bad as to quit. But are all forms of failure equal? And what do the forms in which we fail say about who we are and how we think? We live in an age obsessed with success, with documenting the myriad ways by which talented people overcome challenges and obstacles. There is as much to be learned, though, from documenting the myriad ways in which talented people sometimes fail.

fail to succeed

For more about Malcolm Gladwell’s article on “The Art of Failure,” click here.

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Does fraud follow economic cycles?

Does this sound like your business lately?  Sales volume is down.  Cash is tight. The company is losing money.  And just when you think things can’t possibly get any worse, you discover that one of your employees has committed fraud… Sadly, this scenario is all too common and begs the question of whether fraud is more likely to occur when the economy slows down.

Economy down, fraud up?

A survey conducted by Deloitte & Touche in late 2008 showed that 63% of the firm’s clients expected an increase in fraud related to the global financial crisis experienced in that year.  This would seem to indicate that, at a minimum, people expect more fraud to occur during an economic downturn.

However, it may be that fraud is simply more likely to be discovered during times of economic stress.  When business is good, people don’t tend to question anomalies as thoroughly and small frauds might even be dismissed in an effort to maintain focus on growth, not problems.  But when money is tight and management is kicking over every rock looking for profits, it’s much harder to conceal fraud and companies are willing to go after fraudsters to recover precious lost resources.

Public perception of fraud can also make it seem as though there’s an uptick in fraud in lean times.  During a downturn, most economic news coverage is negative.  Discovery of fraud certainly contributes to the tone of the times and is often a lead story during such periods of stress.  Additionally, improved fraud detection measures (think Sarbanes-Oxley) have helped increase the actual number of frauds detected, hence the appearance that more fraud is happening.

So what actually causes a person to commit fraud?

Fraud Triangle

fraud triangle

The Fraud Triangle, first set forth by Donald Cressy, describes three factors that are present in every situation of fraud:

  1. Pressure – the need for committing fraud (need for money, etc.)
  2. Rationalization – the mindset of the fraudster that justifies them to commit fraud
  3. Opportunity – the situation that enables fraud to occur (often when internal controls are weak or nonexistent).

In order to break the fraud triangle, an organization must remove one of the three elements of the triangle.

Pressure

Many things may contribute to the pressure to commit fraud during troubled economic times.

Any of these or a host of other factors could pressure a person into biting the hand that feeds them.

Rationalization

How does a person justify theft from their employer?

Particularly during a downturn, it’s not terribly difficult for a dishonest person to find a reason to steal.

Opportunity

Times of economic stress present many opportunities to commit fraud that might not be present during better times.

  • Less people doing more work = lack of oversight
  • Same level of supervision over more people
  • Middle managers (supervisors) are generally the first to be cut
  • Battlefield promotions of un- or under-experienced people

It’s important that companies realize the risks associated with cutting resources and take steps to ensure that internal controls aren’t compromised.

(Find out what the 7 Warning Signs of Fraud are!)

An Ounce of Prevention…

So what’s a company to do?  There are several fraud-prevention tactics that can be used, both in good times and in bad.

  • Review internal control policies/procedures
  • Get a handle on crucial resources
  • Monitor key metrics for anomalies

Most fraud prevention scenarios focus on removing opportunity by strengthening internal controls. While this is a great first-line defense against fraud, it’s also important that a company take stock of its resources (like cash) to establish a baseline from which to measure changes.

It’s hard for fraud to hide out when management is tracking key drivers.  Fraud will usually cause a blip in key metrics, but if those metrics aren’t being watched, the blip could slip by unnoticed.  Not sure what you should be tracking?  Check out our free KPI Discovery Cheatsheet below.

does fraud follow economic cycles

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does fraud follow economic cycles

Whether or not fraud actually follows economic trends is up for debate.  The good news is that there are steps that a company can take to minimize the likelihood and impact of fraud.

Leave us a comment with your fraud prevention tips below.

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Dealing with Employee Fraud

employee fraudRecently, I was visiting with a potential client who had been the victim of fraud.  Talking with him brought back unpleasant memories of the first time I discovered that one of my client’s employees had committed fraud against the company.  Despite the fact that it happened a long time ago, all of the emotions associated with the violation came flooding back.

Dealing with Employee Fraud

Betrayal

The first, and perhaps strongest, emotion is betrayal.  Anyone who has been a victim of fraud feels violated.  It’s not unlike finding out that your spouse or significant other has had a relationship with another person.  Most likely, the violator’s motive wasn’t personal, but it’s difficult not to take such treachery personally.

Shock

The next emotion I remember feeling was shock.  How could this have happened?  How could we have been so blind?  It’s hard to believe that this person you trusted could steal from you without you knowing it.  You feel duped and, as a result, may question your ability to judge a person’s character.

Anger

Once the hurt feelings and shock have passed, you will be angry. You may seek retribution. Unfortunately, it is often difficult to get your money back and district attorneys are reluctant to prosecute such cases unless there are large sums involved.  Even if they go forward with prosecution or seek compensation, any recovery is often less than the amount stolen.

Despite this fact, it’s important to pursue the matter regardless of the sum. It’s not just about you getting your money back.  It’s also about ensuring that this person doesn’t have the opportunity to violate someone else in the future.  Often, this is not the first time the person has committed fraud.  Even if you recover less than your losses, the paper trail created by the prosecution will be a red flag to anyone who runs a criminal background check on the individual in the future.

Eventually, most people move on past the emotions and learn to trust again.  Most likely, they won’t trust to the same extent, though.  The painful lesson learned is trust, but verify.

One of the positive outcomes of such an experience is tightened internal controls.  Because of this, the company can come out stronger in the end for having survived the theft.

How do you know if employee fraud is happening in your company? Check out our free Internal Analysis whitepaper to create the roadmap for your company’s success!

Dealing with Employee Fraud
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Dealing with Employee Fraud

Check out our article:  7 Warning Signs of Fraud

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Opportunity Costs

See also:
Decision Making
Opportunity Cost Definition

Opportunity Costs Definition

In economics, opportunity costs refer to the value of the next-best alternative use of that resource given limited resources. They are applicable beyond finance and accounting. In daily life, opportunity costs are the benefits or pleasures foregone by choosing one alternative over another.

For instance, if you decide to spend money eating out for dinner in a restaurant, then you forgo the opportunity to eat a home-cooked meal. You also lose the opportunity of spending that money on another purchase. If the next-best alternative to eating out is eating at home, then the opportunity cost of eating out is the money spent. In addition, another opportunity cost is the experience you forgo by not eating a home-cooked meal. In other words, the opportunity cost is the value of the next best use of your resources. When resources are scarce, consider the cost between alternatives. Do this so that resources (such as time, money, and energy) are used as efficiently as possible.


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Opportunity Costs for Production

Opportunity costs apply to allocating resources in production. In economics, the production possibility frontier (PPF) refers to the point of allocating resources and producing goods and services in the most efficient way possible. If the economy produces quantities of goods below or above the PPF, then infer that resources are being allocated inefficiently. The PPF illustrates that opportunity costs exist when deciding what quantity of goods and services to produce in order to maximize efficiency and production capacity. Companies use opportunity costs in production to make smart decisions by weighing the sacrifices of choosing one alternative over another.

Explicit Costs

Explicit costs are opportunity costs when producers make direct payments for expenses such as salaries and wages of employees, rent and utility expenses, and material costs. For example, a company has a $10,000 rent expense. The opportunity cost of $10,000 could have been spent on other aspects of business operations.

Implicit Costs

Implicit costs are opportunity costs when you use an asset instead of selling or renting the asset to someone else. These opportunity costs exist without any actual payments. Economic profit takes implicit costs into account as an extra opportunity cost when you subtract both explicit and implicit costs from total revenues. Accounting profit only takes explicit costs into account when subtracting explicit costs from total revenues.

Opportunity Costs for Consumption

Opportunity costs apply to allocating resources in consumption. If you decide to spend money on a purchase, then you forgo the opportunity to spend that money on other purchases.

Example

For example, a homeowner decides to use his guest quarters over the garage to create a home office. The opportunity cost of the homeowner’s decision is either:

  • the loss of that guest quarters space for visiting family or friends
  • the potential money earned from renting out the space

Check out our free Internal Analysis whitepaper to assist your leadership decisions as your enhance your strengths and resolve your weaknesses.

opportunity costs
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3 Benefits of an Analysis of Customer Profitability

analysis of customer profitability

Over time weeds grow in any garden. In the same way, unprofitable customers work their way into your company. To avoid the high costs of low profit customers, you should perform an annual analysis of customer profitability. Therefore, weed your garden of customers who are sapping your profits and cash flow.

Although there are many ways to look at your customer base, some of the factors to consider are sales volume, gross margin, profitability, number of transactions, and average sale per transaction. Looking at this information will not only shed light on those customers who are a drain on company resources, but highlight opportunities to sell more to higher margin customers who have low activity.

Analysis of Customer Profitability Benefits

1.  The elimination of customers that are costing you money.

Sometimes the costs may be indirect. Firing the customers with low gross margins is straightforward, but what about the customers that pay a good gross margin but require a lot of effort from operations? Not only do you need to address gross margin but you need to consider the costs to service that customer.

2.  Focus!

If you get rid of the clients that are high maintenance, then it frees your organization up to focus on the more profitable customers. While a successful strategy might be to cross sell additional products or services to those clients who value the relationship, another strategy would be to target new customers with the same characteristics as the good clients you have today.

3.  Increased Productivity Across the Organization

The benefits of weeding out high-maintenance, low profit customers will reach across the organization.  The sales department benefits by focusing their prospecting on the right clients who value and will pay for the company’s products and services. Operations and finance will realize improved productivity in servicing only those customers who are reasonable in their demands for service.  No more getting beaten up on margins, “special” payment terms, or Friday afternoon rush jobs!

The bottom line is the advantage of customer profitability analysis is improved profitability and cash flow! The two ingredients necessary to grow a company faster.

Learn how to apply concepts like this in your career with CFO Coaching.  Learn More

Your CEO needs to understand each customer’s profitability and for you to be their trusted advisor. Click here to learn how you can be the best wingman with our free How to be a Wingman guide!

analysis of customer profitability

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analysis of customer profitability

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