Assume you want to have Net Income of 10%. And, you currently have Net Income of 7% What would you have to do to increase that profitability while maintaining the same sales volume?

Working backwards requires 1. a careful analysis of 2. accurate data.
                                                                                                                                                 Let’s start with 2. accurate data. Many business leaders get stopped right there. Their data is not accurate. They could be using standard costing that doesn’t reflect actual.  The inputs may not be complete. The data may be assigned improperly, They might not collect any data.
                                                                                                                                                 Guess what? Your most successful competitors may be way ahead of you on this.  And,  if you think this only applies to products and not to services, think again. Consulting firms track the hours to produce a report, or complete an assignment. Marketing firms track the cost of client acquisition. You have to start collecting accurate data if you want to be in business 5 years from now….or maybe, it is a 3 year timeline….or less.
                                                                                                                                               Measuring profitability can drive improvements in efficiency. It can also lead to firing unprofitable clients, improving quality, addressing free services that clients don’t value.
                                                                                                                                                How would you know where to 1. carefully analyze once you have good data? One place to start is the Profit and Loss Statement. Which line items seem too high or too low? If you can get information from your bank on how they analyze companies financial statements, you might see what they think is standard. If you have publicly traded competitors, or they are listed in the INC. 500 or someplace where they give financial reports, look at what they do. Or, check government data in the broad aggregate. If none of that works, bring in a consultant who works in your industry for a couple of hours of consulting to get you started. You may find that you give away for free much that your customers might not even value.
                                                                                                                                               Starting backwards drives you to challenge your long held assumptions that may have exceeded their shelf life. This may not be fun work, but it can be oh-so rewarding!
                                                                                                                                                           image courtesy of