Profitability analytics is a strategy to help improve profitability through understanding and analyzing the drivers of your business. Implementing a successful program can identify margin leakage and establish performance targets while improving pricing strategies, resource planning and benchmarking. Organizations of all sizes must leverage data to increase decision-making power and timeliness to ultimately increase revenue. Large sets of data and advances in supporting technology can enable middle-market organizations to implement a profitability analytics strategy.
Profitability analytics helps you view your portfolio of products and services by key costs and then by key dimensions (i.e., customer, region, plant, retail store).
Profitability analytics seeks answers to the following questions:
- What are our top- and bottom-performing products and services by key dimension?
- What are our key profitability drivers?
- What information do we need to run our business effectively?
- How are indirect costs impacting our profits?
- What is our pricing strategy and why?
- How does our portfolio of products and services benchmark against itself?
A successful strategy can integrate several new processes into your organization in order to drive increased revenue and profitability. These include:
- Identification of margin leakage: Targeting problematic areas within your portfolio of products and services
- Enhanced pricing strategies: Developing a data-driven pricing strategy to maximize value at time of sale
- Better resource planning: Identifying top and bottom portfolio performers to improve, discontinue or expand products and services
- Ongoing benchmarking and analysis: Offering constant attention to your portfolio of products and services by key dimension for sustainable results
- Establishment of performance targets: Developing key metrics for future reporting, monitoring and analysis
- Insight into transaction-level detail: Providing deeper insights and information to enhance root cause analysis
A series of steps helps give you greater visibility into the keys to your profitability and how to make improvements.
- Identify and record your true product and service costs and drivers
- Create P&Ls and dashboards to report your profitability
- Benchmark and monitor portfolio results for process variations and opportunities for improvement
- Evaluate margin leakage for profitability improvement
- Set target profitability
- Measure, monitor and evaluate near-time KPIs and targets
- Develop objective data-driven business strategy
Leveraging technology for greater results
To increase intelligence and data analytics during your planning process, you should consider leveraging corporate performance management (CPM) and business intelligence (BI) technology. CPM and BI encompass a set of techniques and tools to transform raw, disparate data into meaningful insights for business analysis.