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Improving Profit: Using Contribution Metrics to Boost the Bottom Line

Book Description

Business of all sizes have a problem: How do you know—in real time—whether you are earning the profit you need to grow or even just stay in business? And which products or services are doing the "heavy lifting" in contributing to profit? Financial statements tell only part of the story. They are backward looking, for one thing, and they generally show results only in the aggregate. Worse, they never seem to reflect the hard work you're doing on a daily basis. As one manager said, "If I'm adding 25% profit to every job, why am I getting barely 5% net profit at the end of the year?"

Improving Profit: Using Contribution Metrics to Boost the Bottom Line solves this dilemma. As this book shows, Contribution-Based Activity (CBA) measures focus on two key levers that are fundamental to the operation of any business: financial contribution and units of activity. Knowing how to use these levers gets your company off the treadmill and on your way to stellar profitability. And as the 21 case studies show, CBA is surprisingly easy to apply to businesses of all types and all sizes.

What is "financial contribution"? Simply the amount above and beyond the cost of goods or materials sold that contributes to covering overhead and creating profit. As entrepreneur, business consultant, and professor Keith Cleland shows, few managers actually know the financial contribution their products and services make, nor how to amplify that contribution by incremental adjustments to one or both levers. As you'll learn, the financial tool Cleland created, TARI (Target Average Rate Index), provides insight into each product's value. You'll not only learn which products are contributing the most to the bottom line, but how to unlock the profit potential in run-of-the-mill products or services. Improving Profit will help you:

  • Restore and boost profit levels for your entire operation

  • Relate your daily efforts to a transaction's actual profitability

  • Focus on the two key performance indicators that can help you identify and solve problems affecting finance and productivity

  • Help everyone in the company—from CEO to janitor—understand how their activities help or hinder the company's fortunes

  • Make effective financial decisions

If you've ever wondered why your results don't match your hard work, hopes, and dreams, read this book. As the case studies make clear, identifying and applying TARI results in a significant—and often dramatic—boost to the bottom-line.

What you'll learn

Readers will learn to:

  • Improve the profitability of a job, product, service, or department

  • Price products and services correctly

  • Conserve cash and avoid financial crunches

  • Win desirable quotes and tenders

  • Identify and track productivity

Who this book is for

This book is for business managers, directors, consultants, students, professors, CPAs, and business advisers of all types.

Table of Contents

  1. Title Page
  2. Apress Business: The Unbiased Source of Business Information
  3. Dedication
  4. Contents
  5. Foreword
  6. About the Author
  7. Acknowledgments
  8. Introduction
  9. CHAPTER 1: Background to Contribution-Based Activity (CBA)
    1. The Problem
    2. The Solution
    3. Action Sheets
    4. Summary
  10. CHAPTER 2: Kitchen Utensil Manufacturer Taken to the Cleaners
    1. Case Comment
  11. CHAPTER 3: Printing Business Multiplies Net Profit by 500%
    1. Case Comment
  12. CHAPTER 4: Furniture Manufacturer Climbs Out of the Red
    1. Case Comment
  13. CHAPTER 5: Contractor Overcomes Competition to Make a Profit
    1. Case Comment
  14. CHAPTER 6: Horticultural Equipment Proprietor’s Moment of Truth
    1. Case Comment
  15. CHAPTER 7: Wholesaler Nets $2.5M in 10+ Months
    1. Case Comment
  16. CHAPTER 8: Jeweler’s Changed Focus Turns Red into Black
    1. Case Comment
  17. CHAPTER 9: Upmarket Café Learns How to Stay on Track
    1. Case Comment
  18. CHAPTER 10: Diesel Repair Shop Rescued from Sand-Up-Hill Country
    1. Case Comment
  19. CHAPTER 11: Garment Maker Multiplies Net Profit by 700%
    1. Case Comment
  20. CHAPTER 12: Switchboard Manufacturer Climbs into the Black
    1. Case Comment
  21. CHAPTER 13: Baker Identifies Where the Rubber Meets the Road
    1. Case Comment
  22. CHAPTER 14: Architectural Practice Eradicates a Malignant Cancer
    1. Case Comment
  23. CHAPTER 15: Accounting Firm Wins by Losing a Third of Its Fees
    1. Case Comment
  24. CHAPTER 16: Legal Firm Transfers Productivity to the Bottom Line
    1. Case Comment
  25. CHAPTER 17: Contractor Increases Strike Rate to 1 in 4
    1. Case Comment
  26. CHAPTER 18: Hot Bread Baker Discovers More to Bread than Flour
    1. Case Comment
  27. CHAPTER 19: Window Manufacturer’s Flawed Foundation
    1. Case Comment
  28. CHAPTER 20: Multi-Home Contractor Discovers a New Way Home
    1. Case Comment
  29. CHAPTER 21: Award-Winning Hairdressing Salon Cuts Its Way Out of Bankruptcy
    1. Case Comment
  30. CHAPTER 22: Multi-Department Store Whitewashes the Past
    1. Case Comment
  31. CHAPTER 23: 14 Businesses Explore CBA/TARI
    1. 23.1 Vehicle Manufacturing
    2. 23.2 Manufacturing and Distribution
    3. 23.3 Distribution
    4. 23.4 Software Development
    5. 23.5 Engineering and Design
    6. 23.6 Property: Real Estate
    7. 23.7 Packaging: Production and Distribution
    8. 23.8 Banking
    9. 23.9 Banking
    10. 23.10 Automobile Distribution
    11. 23.11 Household Equipment
    12. 23.12 Specialized Farming Equipment
    13. 23.13 Importing and Distributing
    14. Consumer Products
    15. 23.14 Commercial Vehicle Sales
    16. Comment
  32. APPENDIX A: Questions Answered
    1. Diagnosing Problems
    2. Identifying Productivity
    3. Establishing TARI for a Manufacturing Business
    4. Achieving Competitive Advantage
    5. Establishing a TARI for a Retail Business
    6. Accuracy of Sample Using Invoice Analysis
    7. Sustaining Competitive Advantage
  33. APPENDIX B: Fast-Track Problem Resolution Guide
  34. APPENDIX C: Definition of Terms
  35. APPENDIX D: The Business Wheel
    1. Check Your Wheel!
  36. Epilogue: Why Contribution Metrics?
  37. Index