One of the best books on enhancing profitability is “Islands of Profit in a Sea of Red Ink: Why 40% of your Business is Unprofitable and How to Fix It.” It’s not just about finance and accounting; every member of your executive team can absorb its lessons and profit from it.
A recent article in Chief Executive Magazine offers a taste of what this masterwork contains. The author, the late Jonathan Byrnes was a professor at MIT’s Sloan Business School specializing in cost control and profit improvement. Among the many “profit drains” of which he warned executives, here are three of most common. Which drain is your company circling?
- Marginal contribution. Why shouldn’t we take business that contributes to overhead, even if it doesn’t cover full cost?
- Full product line. Why shouldn’t we carry products that lose money if they are part of a product line that makes money overall?
- Traffic drivers. Why shouldn’t we carry money-losing “loss-leader” products if they attract customers who then buy very lucrative products?
For a quick prescription for each check out this short article: How To Avoid 3 Common Profit Drains…Then buy and study the book.
