Maximizing profits thus seems like
a choice of either goosing the revenue or shrinking the costs. At the least complex level, this is the
functional truth of the relationship.
However, sometimes, senior management focuses on profit as it relates to
product or service specific profitability.
Think about your own company and its products/services for a
moment. There are undoubtedly some lines
of business that are significantly more profitable than others. What does this mean, “more profitable lines
of business?”
Products and services are more profitable when the
fundamental relationship outlined above is applied to the product/service
level. For instance, you may offer a
consulting service in your company that notionally costs only the labor
involved in paying an associate to engage in the project with the client. This is normally high value-added service
which can command a good revenue in relationship to the cost of the person
doing the actual work. Alternatively,
you may have a commoditized service like payroll functions that are highly
competitive and very low margin.
In the first case of the consulting service, your revenue is
much greater than your costs and the profit of that business is greater than
the second case where the revenue and costs are much closer to each other. Most businesses recognize these relationships
(although not all by any means – thus the need for Activity Based Accounting,
as an example) and will want to emphasize that particular business over other
lines.
What
does this mean for marketers? If you are
focusing your marketing efforts on a broadly based business strategy, your
results might be more difficult to tie directly to the more profitable lines of
business. This disconnect will lead to
confusion as to the efficacy of your marketing program spend. Knowing what lines are the most profitable
and which senior management are most interested in promoting is a key skill you
must master in order to prove your worth at the decision making table.
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