As a business becomes more complex, it gets difficult to trace costs. If you aren’t sure where your company is making money — or losing it — follow these two steps to simplify:
- Analyze profitability by offering or market. There are often large profit disparities among lines of business, brands, products, and customers. Knowing exactly where you’re making money and how is the first step to making more of it.
- Make sure each brand and SKU is pulling its weight. Most complex companies have many brands or SKUs that contribute little to the bottom line. By targeting profitable ones and cutting the rest loose, you can free up significant capacity with negligible loss in revenue and volume.
Adapted from Guide to Finance Basics for Managers.