How can you ensure that your customers are getting consistent value from your product or service while you maintain or grow profit margins?
Whether you’re a solopreneur delivering professional services or a manufacturer dependent upon supply and value chains, these principles will help you evaluate your value processes.
First, let’s look at the steps in your value chain. These are the direct inputs and activities required to deliver a product or service and incrementally contribute additional margin to the company.
Let’s look a few example business models:
For a restaurant, the primary activities include formulating recipes, acquiring ingredients, preparing meals, and serving customers. There is always an opportunity for a restaurant to excel in any of those activities as part of the value processes.
A retailer’s primary activities include understanding consumer demand, sourcing consumer products, promotions and displaying products, point of sale and customer service. Retailers can focus on one or more of those processes to differentiate themselves.
Finally, manufacturers give us the most traditional insight into value chains. They require raw material inputs, production, assembly, packaging and delivery activities to create value for customers.
To help boost profit margins, ask yourself what you do best in your value chain and where you are the most at risk (the weakest link).
Other areas to evaluate are your secondary activities. These are business management activities that don’t directly deliver the company’s value proposition, but are still essential.
Continuing with our restaurant example, we can assume secondary activities include human resources, kitchen management, and accounting. All very important for operations and pose risks when they are not working effectively – think of old equipment that decreases kitchen productivity and quality of meals.
Another profit margin booster question: Where are we wasting resources or having to redo work?
Combining what you do best with more efficiency can become your competitive advantage. For example, a company with a strong online sales process coupled with low-cost procurement capability may be able to source raw materials and sell more products at a lower price than rivals. All else being equal, the procurement advantage will be enough to create higher profit margins than competitors.
Want to learn more about how to set yourself apart from competitors? Let’s talk more about your value processes. Book a complimentary coaching session today.