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100 WAYS: #1 Identify Profit Centers, Keep the Winners, Lose the Losers
– March 9, 2010

Way1Your company needs to determine which products and services are the winners and which are the losers. To do this, you must:

  1. Know your costs of producing products or providing services.
  2. Understand the relationship between volume and profit and breakeven points.
  3. Understand the customer's demand for products and services.
  4. Apply the Pareto principle of the "80-20" rule.

The Pareto principle demonstrates that 20% of the known variables will produce 80% of the results. Some examples of the Pareto Principle applied to the business world are:

  1. 80% of the profits generated come from 20% of the products or customers. Time and energy needs to be spent on this 20% of the business.
  2. 80% of the problems (from employee morale to rework) are caused by 20% of the employees.
  3. 80% of sales come from 20% of your salespeople. Focus on rewarding these 20% and reducing the cost associated with the remaining 80%.

In order to implement the concepts discussed, your company needs to develop a strategic action plan involving costs, customers, channels of distribution, competition and compatibility.

 

Walker CoburnWalker Coburn
318.429.2109

wcoburn@hmvcpa.com

Walker is a Senior Auditor in our Shreveport office. He received his Bachelor of Administration in Accounting and a Masters of Accountancy from Millsaps College in Jackson, MS. Prior to returning to his hometown of Shreveport and joining Heard, McElroy & Vestal, Walker worked for KPMG in Jackson and Memphis, and more recently as a financial reporting advisor for FedEx Corporate.

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