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100 WAYS: #1 Identify Profit Centers, Keep the Winners, Lose the Losers
– March 9, 2010
Your company needs to determine which products and services are the winners and which are the losers. To do this, you must:
- Know your costs of producing products or providing services.
- Understand the relationship between volume and profit and breakeven points.
- Understand the customer's demand for products and services.
- 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:
- 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.
- 80% of the problems (from employee morale to rework) are caused by 20% of the employees.
- 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 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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