While it is understandable for any company to be on a continuous quest for revenue, it is important to note that all revenue streams do not generate similar outcomes.
Additional revenue from large, high profit A customers is far more desirable than higher revenue from low volume, low profit C customers. The same is true for products and product configurations.
Blindly chasing revenue from every source possible tends to push companies outside their areas of expertise and expand the SKU base beyond what can be properly managed. This “say yes to every revenue opportunity” mentality can be a major profit drain.
New revenue opportunities must be scrutinized before being pursued. In addition to projecting revenue potential, anticipated costs need to be analyzed.
Tools such as total cost of ownership, activity-based costing, and profitability analysis can be used to evaluate the bottom line implications of a new or expanded venture. This will ensure additional revenue is not outweighed by additional supply chain expense.
This is an excerpt from the most recent Produce Blueprints quarterly journal. Click here to read the full article.
