8 Principles ofQuantum Profit Management

presented by

WayPoint AnalyticsMerrifield Consulting

QPM Principle #1

• You’re Making More Money than You Knowo all companies have internal profitsomagnitude of the internal profits can be significanto internal profits are being diverted away from the

bottom lineo correcting this is completely in your controlo act to identify and retain more of the company’s

internal profits

QPM Principle #2

• Measure & Evaluate at the Quantum Levelo simpler to measureomore direct controlo consumes less time / resourceso reduces risk of errorso target for high-leverage resultso analyze and manage the business at the granular

level

QPM Principle #3

• Measure & Manage on Net Profito Net profit rarely correlates to GP/GM%o GP/GM% doesn’t account for CTS varianceso GP incentives drive dysfunction:• GP% mirage• work against your true objectives• pits management vs sales force

o GP/GM% evaluation drives poor decision-makingo use Net Profit for decision-making

QPM Principle #4

• Manage the deltas o profit improvement is the main purpose of

executive managemento focus on profit improvement management can

differentiate a company from competitorso profit deltas in customers, territories, product

lines and vendors can all contributeo drive profit improvement at the quantum level

QPM Principle #5

• Financial Averages Mask Realityo every segment is made up of componentso component performance can vary wildlyo analyze and investigate homogeneous segmentso homogeneous segments lend themselves to

uniform, profitable service modelso dig deep enough to find segments with

homogeneous performance

QPM Principle #6• Understand and Manage Service Models

omake money on everything you doo every segment needs its own profitable service

modelo service models must fit within the GP/Margin

envelope of the segmento profitable segment service models eliminate

cross-subsidies, and divert profits back to the company

o develop profitable service models for every segment

QPM Principle #7

• Identify and Manage Cross-Subsidieso in every business, profitable segments generate

profits consumed by losing segmentso some cross-subsidies are intentional and strategico segments can have their own cross-subsidieso cross-subsidies consume the bulk of every

business’ profitso identify and manage cross-subsidies strategically

QPM Principle #8

• Align Goals & Incentives with Net Profitomake sure everyone has the same goals as the

company and senior managementomake sure incentive aren’t driving dysfunctional

or counter-productive behavioro ensure all incentives are based on Net Profit or

CTS improvments

8 Principles of QPM

1. You're making more money than you know.2. Measure and evaluate at the quantum level.3. Manage on net profit.4. Manage the deltas.5. Financial averages mask what's really going on.6. Understand and manage service models.7. Identify and stop non-strategic cross-subsidies.8. Synchronize goals & incentives.