The Five Ps of the Profitability Puzzle
Profitability is affected by a variety of factors, not all of which are strictly financial. I call these factors the “Five Ps” of business success: Product, Pricing, People, Process, and Planning.
Last month I had the opportunity to present my thoughts on the Five Ps and how they relate to business profitability and cash flow, to the Colorado North chapter of the National Organizations of Trusted Advisors, of which I am a member. As I explained to the group, an analysis of financials—your cash conversion cycle, working capital, receivables, debt/equity ratio, and statement of cash flow—demonstrates how the “Five Ps” come into play relevant to business profitability and cash flow. Consider the following questions as they relate to your business:
Product (which may be a service)
- Do you know who and where your customer is?
- How is your product positioned?
- Do you know your production capacity?
- Do you have the right key performance indicators in place?
- Do you have proof of concept – have you sold sufficient quantities to your market?
- What profit level do you want to achieve?
- Is your product priced to be profitable?
- Have you developed a formula to achieve your gross profit?
- Do you know your costs?
- What products yield the highest gross profit?
- What skills and behaviors are required?
- What are the primary job responsibilities for the position?
- Does the staff member engage the customer? If so, at what point?
- What is your hiring process?
- What is fair pay for the position?
- What is your on-boarding and training process?
- Do you hire fast and fire slow? Or, hire slow and fire fast?
- Are your written processes efficient and effective?
- Who does what, when and how?
- Do your processes produce optimal quality and quantity?
- How do you measure each process? Do you benchmark?
- Are your written processes used in training?
- Do your processes maximize time and minimize cost, with a focus on quality?
- What is your one-year outlook?
- What do you need to accomplish in the next year to move your business forward?
- Do you have a profit plan (as opposed to a “budget”)?
- Do you have a strategic plan for your business?
- Do you have sufficient cash flow to implement your plan?
By keeping the Five Ps in mind when creating your strategic plan, you can stay focused on the precious resources that are critical to your company’s success. In addition, a good strategic plan will help you prioritize and hone your attention on the important elements that can move your company forward and help you maintain positive cash flow.
As the former owner of a multi-million dollar company, I’m a CFO with a CEO perspective, which provides me with a unique understanding of the Five Ps and how each contributes to a company’s overall financial picture. I’d welcome the opportunity to help you put the pieces of the profitability puzzle together for your business.