When I speak with managers about profit generation, one of the most frequent topics that come up are the pitfalls and logic traps that lead to major profitability drains. Here are the biggest offenders:
Contribution – Why shouldn’t we take business that contributes to overhead, even if it doesn’t cover full cost?
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 products if they attract customers who then buy very lucrative products so we make money overall?
Each of these questions seems to have a perfectly logical answer that leads to the suggestion that it is OK to carry money-losing business. Maybe the Sea of Red Ink is not so bad after all. But think about each question carefully.
Author: Jonathan Byrnes
Source: Business Finance Magazine
Subjects: Finance, Management
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