Improving Profit: Using Contribution Metrics to Boost the Bottom Line

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

• 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

Chapter 1. Background to Contribution-Based Activity (CBA)
Chapter 2. Kitchen Utensil Manufacturer Taken to the Cleaners
Chapter 3. Printing Business Multiplies Net Profit by 500%
Chapter 4. Furniture Manufacturer Climbs Out of the Red
Chapter 5. Contractor Overcomes Competition to Make a Profit
Chapter 6. H orticultural Equipment Proprietor’s Moment of Truth
Chapter 7. Wholesaler Nets $2.5M in 10+ Months
Chapter 8. Jeweler’s Changed Focus Turns Red into Black
Chapter 9. Upmarket Café Learns How to Stay on Track
Chapter 10. Diesel Repair Shop Rescued from Sand-Up- Hill Country
Chapter 11. Garment Maker Multiplies Net Profit by 700%
Chapter 12. S witchboard Manufacturer Climbs into the Black
Chapter 13. B aker Identifies W here the Rubber Meets the Road
Chapter 14. Architectural Practice Eradicates a Malignant Cancer
Chapter 15. Accounting Firm Wins by Losing a Third of Its Fees
Chapter 16. Legal Firm Transfers Productivity to the Bottom Line
Chapter 17. Contractor Increases Strike Rate to 1 in 4
Chapter 18. Hot Bread Baker Discovers More to Bread than Flour
Chapter 19. Window Manufacturer’s Flawed Foundation
Chapter 20. Multi-Home Contractor Discovers a New Way Home
Chapter 21. Award-Winning Hairdressing Salon Cuts Its Way Out of Bankruptcy
Chapter 22. Multi-Department Store Whitewashes the Past
Chapter 23. 14 Businesses Explore CBA/TARI

Appendix A. Questions Answered
Appendix B. Fast-Track Problem Resolution Guide
Appendix C. Definition of Terms
Appendix D. T he Business Wheel