8 Principles of QPM - WayPoint Analytics

8 Principles of Quantum Profit Management presented by

WayPoint Analytics Merrifield Consulting

QPM Principle #1 • You’re Making More Money than You Know o all companies have internal profits o magnitude of the internal profits can be significant o internal profits are being diverted away from the bottom line o correcting this is completely in your control o act to identify and retain more of the company’s internal profits

QPM Principle #2 • Measure & Manage on Net Profit o Net profit rarely correlates to GP/GM% o GP/GM% doesn’t account for CTS variances o GP incentives drive dysfunction: • GP% mirage • work against your true objectives • pits management vs sales force

o GP/GM% evaluation drives poor decision-making o use Net Profit for decision-making

QPM Principle #3 • Financial Averages Mask Reality o every segment is made up of components o component performance can vary wildly o analyze and investigate homogeneous segments o homogeneous segments lend themselves to uniform, profitable service models o dig deep enough to find segments with homogeneous performance

QPM Principle #4 • Measure & Evaluate at the Quantum Level o simpler to measure o more direct control o consumes less time / resources o reduces risk of errors o target for high-leverage results o analyze and manage the business at the granular level

QPM Principle #5 • Understand and Manage Service Models o make money on everything you do o every segment needs its own profitable service model o service models must fit within the GP/Margin envelope of the segment o profitable segment service models eliminate cross-subsidies, and divert profits back to the company o develop profitable service models for every segment

QPM Principle #6 • Manage the Deltas o profit improvement is the main purpose of executive management o focus on profit improvement management can differentiate a company from competitors o profit deltas in customers, territories, product lines and vendors can all contribute o drive profit improvement at the quantum level

QPM Principle #7 • Price Strategically for Optimum Profits o price curves are intended to match lower margins to more-efficient high-volume business o loss of pricing discipline puts high-volume accounts at risk, and erodes profits on normal business o smart pricing can provide significant profit upside without risking customer relationships o match pricing to resource consumption & maintain price discipline

QPM Principle #8 • Align Goals & Incentives with Net Profit o make sure everyone has the same goals as the company and senior management o make sure incentive aren’t driving dysfunctional or counter-productive behavior o ensure all incentives are based on Net Profit or CTS improvments

8 Principles of QPM 1. 2. 3. 4. 5. 6. 7. 8.

You're making more money than you know. Manage on net profit – GP is a poor indicator. Financial averages mask what's really going on. Measure & evaluate at the quantum level. Understand and manage service models. Manage the deltas – they take you to your goals. Price strategically for optimum profits. Synchronize goals & incentives.