How to Make (a Lot) More Money: Profit-Driven Business Strategy
Tuesday, October 24, 2017—We've developed a numbers-driven strategy to quickly dominate in any market, leaving the competition reeling and unable to effectively counter. It's all documented in my book, "Profit-Driven Business Strategy". I'll boil it all down in this video.
WayPoint clients rely on me, along with my partner Bruce Merrifield, to bring some outside thinking to their executive teams as they implement shifts in their strategy to keep ahead of market change. In these strategy sessions, we make recommendations based on what we've learned from hundreds of companies and thousands of executives we've worked with across more than five decades of collective experience.
Everything we've learned has been boiled down into a cohesive strategy framework that focuses on using profit dynamics and actual results to drive hyper-competitive actions to capture all the best accounts, all the most profitable business, and the bulk of the available profit in any market.
The strategy is aggressive, and produces high profit-rates and great cash-flow, funds high customer service, and supports rewards for people that contribute to your success. It's also nearly impossible for competitors to counter.
I think I can give you a great path forward by summarizing the key steps in the strategy, in the same order the book lays them out.
First, the book lays out the underlying profit dynamics at work below the surface in every business. (The kinds of things I've been talking about in my videos, but in a lot more detail.) Profits result from a mix of profitable and unprofitable sales, activities, and accounts. Since the unprofitable wipe out most of the results from the profitable, measuring to find out which is which identifies where to shift emphasis and priorities. The details of what's actually happening opens the door to tactics that will come later in the book.
Next, the book sets the strategy framework for the specific steps executives can take to move their companies ahead of the competition and the market. There's a chapter dedicated to each of the five strategy steps, describing them in detail.
Step 1: Since the first step in a strategy shift is to protect your profit base, you develop a targeted concierge customer service capability, raising an exit barrier for your most-valued accounts, and arming the sales team with a business reason to help close new customers. Identifying and protecting critical accounts gives you the launch pad for actions that will drive growth.
Step 2: You need to protect and grow your cash-flow, so you use granular profit measurements to identify accounts that are profit contributors, and develop a service model and targeted policy changes to address the profit detractors. This begins the process of rationalizing your customer service costs by more closely matching cost structures to cash production.
Step 3: Build cash-flow by segmenting your customer base by profit-value and efficiency, and then
implementing narrowly-targeted programs for each of the major segments. So, you increase sales penetration in the high-profit accounts, narrow sales focus to win high-efficiency (that is big cash-flow, low-service-cost) accounts, reprice low volume money-losing accounts, and reduce service costs on mid-level accounts. This is the critical core of the profit-gain strategy, where you really start to gain cash-flow, building on the preparatory work in the first two steps.
Step 4: Lose bad business by reforming or replacing profit-draining large accounts. About half the accounts in the major money-losing category can be turned into winners by working on their logistical cost envelopes. They're losers now because nobody has the courage to ask them for necessary changes (like ordering more product, less frequently) , and a little effort can result in big improvements. Usually, about a third cannot be made profitable in any way, and must go – but not before you've produced the cash-flow to replace them in step three. "Firing" them out-of-hand will hurt cash-flow, so you need to make progress in in step three first.
Step 5: You may choose to reduce prices to high-profit accounts to defend them against loss to competitors, and selectively extend the lower price to target accounts that are most likely to do business in the same efficient way. This is funded out of increased cash flow and reduced service costs from steps three and four, not out of your bottom line. When you've made progress in the first four steps, you likely can support a 5-8% price advantage, funded entirely out new cash-flow from a more efficient customer mix.
Meanwhile, the competitors that lose the accounts will be missing the profit supports for their own whale curves, curtailing their ability to follow to the lower price levels, and will have a hard time getting the accounts back.
The end-state of the strategy is having profit rates two- to three-times the industry average, getting out of your credit line, and showing accelerated growth.
The book goes into each of these steps in detail, and then wraps up with a chapter on the advanced analytics we use here at WayPoint, and what tactics to employ to take advantage of them.
I hope that just reviewing the broad strokes of the strategy will get you thinking, and you'll begin using the ideas to set your company on the road to rapid profit growth. I've put a link to the book in the description below so you can get your own copy. I hope it helps you make you make a lot of money.
Thanks for watching. If you liked this video, don't forget to like and subscribe. If you'd like to know more about the WayPoint system, or get it working for your company, visit our website at www.waypointanalytics.com.
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