What makes a business profitable, and what are the primary drivers of its revenue growth? The answers to these two questions cannot be abstract ones, especially for financial institutions whose success relies on mastery of hard financial data. Companies that offer financial products and services need the best working knowledge of what makes them competitive and what stands in their way. If a financial company like a bank wants to improve its profitability, its leaders must improve their analytics capabilities.
If you’re a financial manager or a stakeholder in your company’s profitability management, you can do two things. First, you can equip your team with tools to improve your current capabilities, such as an updated suite of profitability analysis software. With such tools, you can break down data silos, freely aggregate and consolidate your enterprise data, and arrive at a profitability model for your business.
Second, you can start assessing your institution based on particular metrics for profitability. If you’ve determined the right metrics, you’ll be able to see how close you’ve come to your ideal profitability ratios. It will be much easier to say with conviction whether your company is actually meeting its profitability goals.
What metrics should you abide by when calculating your enterprise’s overall profitability? Read on to learn about five of the most important ones. Be sure to find the numbers on these five key areas so that you can get a bird’s eye view of your profitability situation.
How Much Does It Cost Your Company to Serve Your Customers?
The first metric that you have to pay attention to pertains to your customers, both individual and corporate. How much money does it cost to acquire and maintain a customer so that they stay loyal to you? You need a comprehensive view of all the costs associated with your customers versus how much you earn from their patronage.
When you have these numbers, you will be able to see opportunities to optimize costs and therefore increase your revenues. The data will tell you everything you need to know about where to reduce spending, such as on traditional advertising, for instance. This is a fairly simple yet effective way to increase your profitability.
How Much Do You Earn from Your Most Profitable Products?
The second metric should examine your company’s most popular products or services. How many new accounts are you opening related to these? Which products or services saw the most growth over a certain period, like the last quarter or the same time around last year?
The data may give you the push you need to increase the reach and visibility of those products and services. It may also help you identify growth opportunities for products and services that aren’t as popular but are worth promoting more aggressively.
How Much Do You Earn from Your Most Effective Channels?
The medium through which you deliver your products and services is also important. That’s why it forms the basis of the third metric, which has to do with your channels. How much money are you making from traditional face-to-face encounters? In contrast, what are your exact earnings from alternate channels, like those that are dependent on digital experiences?
An essential part of determining your profitability has to do with measuring it across very different channels. Your data may prove to you that digital transactions are becoming the norm. This, in turn, may demonstrate the need to invest in new infrastructure to bolster your digital earnings.
How Much Do You Earn from Your Most Loyal Markets?
The fourth metric has to do with the demographics of your most loyal customers. It would be good to compare regional markets and analyze your profits in the areas where you are most successful. This is especially important if you have plans to expand your business outside of your current locality.
You will need to know which factors drive your profitability in regions where you have a strong following. You will also need to know how you can maintain that profitability when your competition arrives. Lastly, you will need ideas on how to replicate the same growth elsewhere. You’ll find everything you need to do if you conduct a thorough profitability analysis for the different markets in which you do business.
How Much Are You Earning after Reducing Costs on Operations?
The fifth metric involves how profitable your business is, based on its operations. Quite frankly, a company can increase its profitability by quite a lot if its leaders commit to improving business efficiency. This includes having better compliance with regulators and not paying penalties, digitizing your processes and reducing overhead costs, and optimizing your labor costs.
The less your company pays for overtime, late report submissions to regulators, and other operational costs, the more value you’ll accrue. Let today be a wake-up call for you to start your profitability journey using something as fundamental as your business operations data.
Conclusion: Overcoming the Challenge of Measuring Your Company’s Profitability
When doing a profitability analysis for your company, your end goals should include the following:
- developing a clearer understanding of what constitutes profit;
- finding a basis for concrete initiatives to drive up your profits; and
- monitoring and maintaining profitability as time goes on and as your business environment grows even more competitive.
Measure your prospects carefully, but act with conviction once your financial decisions have the proper backing. That’s one of the best things you can do to increase your company’s profitability today.