After all, profitability is the name of the game, whether it’s a typical year or a chaotic one. And, while struggling with all the surprising impacts of a global pandemic emphasized the importance of profit margins, it will continue to be a focal point in 2021, given many of us are being asked to do more with less. Therefore, executing on the right things and working with the right customers is more critical than ever.
In this article, Black Line Group VP and Manufacturing Leader, John Madsen, offers a logical approach to increasing your manufacturing margin by focusing on individual customer margins.
Read here how one manufacturer was able to achieve $6K+ savings per hour invested in their study!
Not all customers are created equal, especially in these challenging times.
As simple as that idea may seem, it's important for executives to truly embrace this notion if they are to increase their company’s manufacturing margins.
Analysts estimate that the top 20% of customers (ranked by profitability) generate more than 120% of company profits. Conversely, the bottom 20% account for more than 100% of losses.
You can only find so many ways to optimize your channels and processes or decrease production costs. But having more profitable customers can improve your bottom line almost overnight.
As the coronavirus pandemic swept the nation, you may have reassessed your customer relationships. Can you confirm who your top 20%, middle 60%, and bottom 20% really are? Asking the following questions may provide insights:
In these challenging times, everyone needs clarity — don’t let this opportunity to dig in and improve your customer relationships slip by.
Just because you've been doing business with someone for a long time doesn't mean they're a good customer. In fact, it could mean they've been hurting your business longer than you would like to admit. And, while the current health crisis is troubling to all, it may provide an opportunity to make some long-awaited and difficult decisions.
Now may be the right time to approach unprofitable customers regarding the dilemma you face in maintaining the status quo during this challenging time, allowing you to improve the relationship. In the event that’s not possible, they may be more understanding of your justification for pulling back if things can’t improve.
As much opportunity as there is for customer margin improvement, it will only get you so far if it's not being executed as part of a larger profitability strategy. So, how do you improve profit margin? You’ll likely need to find opportunities in the following areas to increase your manufacturing margin:
The point of all these optimization methods is to focus your business strategies around what matters most. Life is short. Every manufacturer is in business to make a profit, and hopefully have fun doing it. So, why put undue stress and strain on your people and your infrastructure by conducting bad business?
As a wise man once said, “The only thing worse than no business at all is bad business.”
One wise move, especially if you’re looking to find capital to fund the ongoing operation of your business, is to claim the R&D Tax Credit. This can be a critical source of needed cash during a time when it’s needed most.
Lastly, even though the coronavirus pandemic continues to challenge individuals, companies, and the economy, there’s some good that can come of it … if it results in taking a hard look at your profitability and opportunities for margin improvement. So, don’t be afraid to act in the best interest of your company now.
Want more advice for 2021 success? Our 9-point checklist provides insight on process improvements to help you protect your business, increase profitability, and keep growing. Just click the link below!