When selling a product, you naturally want to make a healthy profit. To maximize results per product as much as possible, you need insight into the costs and revenues of that product so you can work on margin improvement. But when companies close their books at the end of the month and have calculated profits at the bottom line, do they know exactly how the products contribute to those profits? And if you don't have the answer to this question, can you make the right decisions? In short, how do you make your products healthy?
Improve your product profitability in 3 steps
Customer value management (CVM) helps improve your information needs so you are in control of the decisions you need to make. By following the following three steps, you as a company can better link your product offerings to financial KPIs. You will also always have a clear picture of the profitability of the product offering and the room for margin improvement.
3 steps to improve product profitability with CVM:
1. Capturing information
To determine the profitability of products, it is important to have all the details in order. Good documentation is a prerequisite for this. Strong documentation starts with determining different product categories to start collecting information for each category. To determine these categories, you need input from different departments such as marketing, sales and operations. By combining the important information for each department, you can determine which standards each category should meet. You can convert these standards into limits that can be monitored. Customer value management helps you make information transparent. By converting this information into measurable goals and periodic evaluations, you can avoid continuing to list products that contribute nothing to the financial performance of your company. In addition, trends become visible and you can make timely adjustments as a company.
2. Analyzing external factors.
In addition to capturing information internally, it is also smart to look beyond the organization. By looking at the external factors that affect product performance, you can develop strategies to respond to opportunities and stay ahead of threats. In general, it is smart to actively capture the following information:
- Who are the competitors in the market?
- How are different markets developing?
- Are our products price elastic or in-elastic?
- When do our products need improvement?
This information must also be maintained by different relevant departments. This is because each department has its own expertise and knows best the developments in its field. Working together, an increasingly sharp picture is thus formed of the market in which the products are offered. This combined approach also reveals how to improve margins on products.
3. Spreading insights.
The combination of internal and external information creates a strong information base on which your organization can make stronger decisions. To take full advantage of this new source of information, you need to make sure the information reaches the right people in the organization by sharing it widely. One effective way to do this is by aggregating key information into a dashboard that provides real-time insight into the performance of your products. SAP PAPM is an example of a tool that can turn big data into clear insights.
In addition to creating and sharing insights, you can also set up automatic triggers that alert you as soon as product profitability or performance develops negatively. This allows you to take action to improve performance. There may even be challenges that require continuous attention and a concrete action plan to ensure acceptable performance. For example, sales through one of the sales channels may be structurally loss-making or a product may not sell in a particular country. Extensive research into the disappointing performance then provides the right insights to create a targeted action plan.
Steering for healthy products
If you want to increase the profitability of your products, it helps to build a sustainable supply of information. You do this by capturing information, analyzing external factors and disseminating insights. By setting up these steps properly, you can show a detailed picture of product performance at any time. CVM gives you the structure to properly set up these steps and quickly surface insights. With this information, you can take the right actions as a company to achieve a healthy profit per product.
Getting started with Customer Value Management and customer profitability?
In our webinar "the 7 steps to understanding customer profitability," we'll take you through our roadmap to understanding your customers' profitability. And we discuss the 7 steps to gain insights that will help your organization make the right strategic decisions. Watch the webinar directly via this link!
