PROFITABILITY MODEL

Profitability Model

Our model offers management a Visibility of its pocket margin (profitability) at a product, customer order, and client level. The scope of our work covers sales, manufacturing and distribution including, sourcing, transportation, and warehousing. With this approach, the user has visibility of what most contributes or erodes profitability considering the execution of the commercial model and supply chain.

Design

Our approach begins with the development of a revenue and cost waterfall. For each silo of the value chain calculations and data sources are defined with the client. It is important to note how the data collection and cleansing phase typically takes a high percentage of time for the model development. As well, client participation from finance, sales and operations are all essential for a successful project.

Project deliverables include, a working profitability model with pocket margin Visibility of profitability, based on a common platform of information across the organization, supported by reports and dashboards.

Waterfall Structure

Price Setting	standard operational costs, commercial conditions, and revenue.
Demand Serving	monthly real cost to serve the customer.
Pocket Margin (profitability)	calculation considering Price Setting and Demand Serving.

Implementation

Considering “in-house” or third-party information systems, with the client, KFW Consultants implementation of the model follows three steps.

Our Approach:

Audit of data availability and reliability,
Analyses development of income, operating costs, and pocket margin calculations,
Development of reports and dashboards.

Training

Following a client request, KFW Consultants will prepare reference materials for the execution and maintenance of the model. In addition, we offer introduction sessions including reports and dashboards, and for advanced users model navigation.

Benefits of our Profitability Model

Offers visibility of income, costs and profitability at a product, customer order, customer, sales channel, and regional level.
Can orient an organization to measure and manage profitability at an item and customer level.
Gives visibility for the development of price, discount, and promotional strategies.
Facilitates customer segmentation for retention and growth strategy programs.
Can reduce or eliminate non-strategic accounts and/or products.
Can establish continuous improvement processes for commercial and distribution cost management.
Facilitates the development of holistic end-to-end models across sales and the supply chain for improved profitability and customer servicing.
Can be used to develop profitability improvement programs, such as: sales incentives, customer minimum order quantities, etc.

$15B+ USD

SALES

INDUSTRIES

20 years

EXPERIENCE

Case Examples

Developed and implemented a profitability model for a Mexican company with businesses across North, Central, South America, the Caribbean, and Europe.