4 Ways Catalyst Profitability Tools Can Spark the Fireworks for Your Finance Team.
Think back to every 4th of July fireworks display you’ve ever seen. What do you remember, the beginning, the middle or the grand finale? The first 80% if the show might be entertaining, but it’s that final 20% that leaves a lasting impression that sticks in our memories for years.
According to the Pareto principle, 20% of the causes often equate to 80% of the effects. Conversely, 80% of the causes often equate to just 20% of the effect. When it comes to profitability, we’ve found this 80/20 principle holds true quite often. 20% of the SKUs often drive 80% of the profits, while the rest are just along for the ride.
Unfortunately, determining what is working and what isn’t, is not that simple.
The vast majority of companies have a hazy view, at best, when it comes to determining profitability. Margins are generally driven from two directions, the cost of production and the cost of sale. The problem is, cost of sale can be very difficult to truly nail down between varying pricing, discounts, distribution cost and other factors. If your product sells in any significant quantity, seeing true profitability requires incredibly complex allocation methodology, and it’s virtually impossible to do it well in Excel.
Our Catalyst software changes all that. With its unparalleled ability to handle large, complex data sets and expertise built right into the software, it allows you to not only see what is going on, but slice, dice and drill down so you can fully understand it.
No other software puts you in the driver’s seat to improve profitability like Catalyst.
With the information from Catalyst’s Profitability Cube, you can empower your organization with data to drive game-changing decisions. Here are 4 ways our clients have used the Profitability Cube to spark fireworks for their finance teams.
SKU or Customer Rationalization
Performing a SKU or customer rationalization exercise can be a large and difficult undertaking, depending on the size of your product portfolio. As we stated earlier, getting a clear understanding of the profitability of individual SKUs can be extremely difficult, without the right tool. In fact, we’ve found many companies are often times taking a loss or making razor thin margins on their best-selling products. The revenue is there, but the profits simply aren’t.
Catalyst’s Profitability Cube allows you to very easily see the true margins on all of your SKUs and customers, from the most profitable to the least profitable, eliminating one of the most difficult and time-consuming parts of these exercises.
From there, you can make fact-based decisions about discontinuing or changing the margin structure of unprofitable items, or parting ways with unprofitable customers. If profits aren’t where you feel they should be, you can easily drill down into that information to not only figure out what is off, but why it is off. Can it be remedied? Can you mitigate material costs or take price and salvage the product? With Catalyst the information is at your fingertips.
Optimize Your BOM
Coming off our last point, understanding what’s driving cost inside the bill of materials can be difficult in many systems where you have a limited ability to slice, dice and drill down. Let’s explore further. Catalyst is built to allow you to follow the breadcrumbs at the speed of thought. In this case, you might want to bring in raw goods data from purchasing and drill into the true cost drivers inside the bill of materials.
Sometimes you can find cost savings opportunities by switching vendors. In other cases, you might find something completely unexpected. For example, we once had a client who was being charged $2.00 per unit on packaging that was supposed to cost $0.20 per unit. Once they began analyzing their profitability with Catalyst, they quickly found the error, went back to the packaging vendor and got their money back. Their margins on the product went from 2% to 13% overnight.
The moral of the story here? If you don’t look, you don’t know.
Catalyst’s Profitability Cube gives you a quick and accurate view of where your margins are, whether that’s by customer, by product, by store or by geographic region. One huge benefit of this is this information allows you to intelligently craft discount programs for optimal impact.
Say you manufacture a grocery item and you want to run a regional dollar discount program. Does it make the most sense to run it across the whole region or just with one specific chain in the region? Catalyst allows you to make more informed decisions with respect to the bottom line and can empower your sales team with critical negotiation leverage by showing them exactly where they can give and take on price.
Inform Sales and Marketing Strategy
Taking key pieces from all three points above, Catalyst’s profitability tools can also be used in steering sales and marketing strategy with data driven insight. In other words, it can fuel decisions about which products you should be emphasizing or deemphasizing at a given time.
This can be especially relevant with SKUs that have a seasonal fluctuation in price, such as certain fruits and vegetables. Catalyst can take this pricing into account and provide you with the data to ensure you have a good pricing strategy in place to account for the fluctuation.
In terms of marketing, profitability insight can also guide you on what products to push. Many of our clients have found “sleeper” products with very good margins that just need a little bit of a push to drive home big profits for the company.
The bottom line here, no pun intended, is that Catalyst equips you to operate smarter. By getting a clearer view of what actually makes the company profitable, Catalyst empowers you to make decisions that change the game and truly give your team cause for celebration.
What challenges is your company facing? Where would you like to gain better visibility into your data? Sound off on social media now and join the conversation.