Don't Risk Your Bottom Line with Unprofitable ProductsAssociation of Business Training
July 9, 2013 — 962 views
Most businesses try to do or achieve too many things at the same time. In other words, they spread their resources thin. In the process, however, they fail to realize that the overload adversely impacts the company’s bottom line profits. So, it is important to identify unprofitable products before they damage your business.
What is an Unprofitable Product Costing You?
If you want to identify your losses, a simple exercise will help. If your firm has many products and services, break down the profits by products or services and recast the financial statement afresh. You will get to see how the underperforming products affect your firm’s overall profitability. If you eliminate unprofitable products, your firm’s revenues will also decline but the declining revenue must not be taken negatively because the overall profitability increases by eliminating unprofitable products. Moreover, when you load your firm with too many products, there are delays in product introductions, consequently causing loss in the market.
Finding Unprofitable Products
With too many products, it may not be always easy to identify underperforming products. However, it is critical for the survival and sustenance of your business that only those products and services are focused on to yield profitability for your business. So, you need to regularly monitor and evaluate every item in the mix of products and services for your business to remain sustainable and viable.
Remember you are not wedded to life to a service or product just because you are currently selling it in the market. You can put a business policy in place to regularly monitor, evaluate, and review each product and each service for its profitability.
Every product has a life cycle but it is not necessary to keep the product alive simply because it has a life cycle. The underperforming products continue to cause inestimable loss throughout their life cycle, the burden of which is borne by the products performing well. So, it’s a good idea to stop offering those products. In fact, managers should also be rewarded for coming up with ideas on how to stop selling a product.
Retiring a product is a complete exercise in itself. At some stage, you have to retire products and help the customers migrate to the next-generation products. However, obsolescence is not music to the ears of the management; but then good managers have to face the reality of the marketplace.
Other Aspects of Product Lifecycle
The product life cycle begins right from the time when it was developed or being developed. This is the time when instead of becoming emotionally attached to it, people should begin talking about terminating or redirecting it because the market changed partly while the product was being developed. You have to think practically about the product to avoid opportunity cost and delays.
Killing a product just prior to its launch is quite difficult, yet a cost/benefit analysis of the product may be needed to keep the launch low-key. In the stage of maturity, when the product is in the market, it is essential to keep a tab on the performance of the product.
It is evident that an underperforming product is a huge drain on the resources of an organization. However, if we adopt a practical approach to the periodic review of the products, losses and strained resources can be avoided. In any case, product review is essential at every stage in the life cycle of a product and not just at the time of its retirement or migration.