November 2023 - controlling profitability
Welcome to Smash & Furious – the monthly column on finance, HR, legal, operations and general management for fast-growing start-ups, VSEs and SMEs.
In November, it’s all about profitability, and ending the year on a high note!
In this episode, we catch up with Jean-Baptiste Cousin to talk profitability.
When should you start managing profitability? What are the essential levers for controlling profitability? What reflexes should you adopt to manage it effectively?
All the tips you need to improve your profitability can be found here!
Smash your problems & Be Furious!
Understanding profitability on three levels
- Before the project: the root of profitability
Profitability needs to be considered from the outset, before you even think about marketing a product or service. As Jean-Baptiste points out, it’s crucial to understand and plan the theoretical margin as soon as you create the estimate. Not only does this tell you whether a project is profitable, it also allows you to materialize the profitability percentages per project.
- During the project: monitoring actual margin
It is essential to track the actual margin throughout the project. This means understanding what happens between the time of sale and actual production. Managing the actual margin requires constant attention to ensure that profitability targets are met.
- After the project: support and analysis
Once a project has been completed, analysis of results and customer support remain key steps in ensuring lasting profitability. This often involves revisiting and adjusting strategies in line with actual performance.
Key levers for boosting profitability
- Controlling expenditure flows: monitoring and understanding expenditure and fundamentals. This includes budget management and responsiveness to unforeseen expenses.
- Productivity gains: improving profitability can also involve optimizing processes and reducing the time spent on non-strategic tasks.
- Continuous monitoring: use in-house tools for constant margin monitoring, from quotation design to final accounting.
- Structured negotiations with suppliers: locking in prices with key suppliers can be an effective strategy for maintaining or improving margins.
- Documentation and adoption of clear processes: establishing well-defined processes adopted by the whole team can eliminate low-value-added tasks and improve efficiency.
Analysis of customer profitability
Furious Squad’s approach to analyzing customer profitability begins with a thorough understanding of the customer’s accounts. This often involves reconstructing or auditing existing figures, and clearly defining terms such as “gross margin”. Interaction with different departments (sales, production, marketing) is essential to understand the entire process and identify areas for improvement.
Balancing profitability and cash availability
It is important to note that an increase in gross margin does not always translate into an increase in available cash. Cost structures and investments can affect cash flow, even with a growing gross margin.
Proactive strategies for sustainable profitability
Managing profitability in start-ups, VSEs and SMEs requires a proactive and strategic approach. As Jean-Baptiste points out, it’s essential to build the conditions for sustainable profitability, by focusing on controlling expenses, improving productivity and rigorously monitoring profitability using the right tools. By adopting these strategies, companies can not only survive but thrive in today’s competitive business environment.
Want to better manage your profitability?
Find out how Furious, our all-in-one ERP solution, can help you keep a clear view of these issues at all times, and plan for these crucial aspects.
