Adjusting your activity to actual market limitations and demands.
In recent years, many companies have realised that growth as a pathway to improving or simply balancing the books has turned out to be stagnant if not backward.
In an environment of low demand with increasing competition, a strategy based on growth at any cost may be unviable or simply result in a loss of margin.
Many companies are thus compelled to revive a perspective based in internal efficiency and to engage in margin-based management as a means of rectifying imbalances and preventing larger sales meaning greater losses, and as the pillar to establishing greater competitiveness and allowing for balanced future growth.
Margin-based management consists of a host of actions carried out within the company to align its activity to actual market limitations and demands, and to be more competitive and profitable in terms of volume and the operations actually made.
How we can help you
- Analysis and segmentation of clients in order to detect drains in value (divergence between values perceived and given by the client) as a basis for adjusting products and rates according to the client’s perception of value and prices they are willing to pay.
- Cost analysis in order to detect drains in costs (hidden costs which come to the fore) as a basis for redefining and simplifying production processes to provide security in determining the actual cost of products.
- Review of fixed or structural costs in order to link them to the internal service provided and seek alternatives in the case of oversized areas or overspending.
Certain key issues
Does margin-based management entail waiving growth?
Margin-based management does not entail waiving growth. On the contrary, it can constitute a solid foundation to achieving sustainable, continual growth.
Nonetheless, margin-based management prioritises attaining balance and financial profitability in the short term with the actual volume and, on this basis, growing without steering away from this premise instead of subjecting the financial balance to a state of future growth that has yet to be secured.
Does margin-based management entail relegating sales function in favour of internal production processes?
Not at all. In margin-based management, the sales function is decisive in providing all knowledge possible about clients and the market as a cross-disciplinary task, in addition to other company functions relating to finance and operation, adjusting products and prices to meet actual demand and capacity as a company.
Can margin-based management be conducted without a suitable management control?
Although an initial analysis can be performed with basic corrections being made without a suitable management control, margin-based management does call for recording data that will provide us with genuine information about operations to compare them with the income they yield and, accordingly, their profitability.
As a result, a review of the company's analytical and management control systems should be a first step to effective margin-based management.