8 Principles of Quantum Profit Management

1. 8 Principles ofQuantum Profit Management presented byWayPoint AnalyticsMerrifield Consulting

2. QPM Principle #1 • You’re Making More Money than You Know • all companies have internal profits • magnitude of the internal profits can be significant • internal profits are being diverted away from the bottom line • correcting this is completely in your control • act to identify and retain more of the company’s internal profits

3. QPM Principle #2 • Measure & Manage on Net Profit • Net profit rarely correlates to GP/GM% • GP/GM% doesn’t account for CTS variances • GP incentives drive dysfunction: • GP% mirage • work against your true objectives • pits management vs sales force • GP/GM% evaluation drives poor decision-making • use Net Profit for decision-making

4. QPM Principle #3 • Financial Averages Mask Reality • every segment is made up of components • component performance can vary wildly • analyze and investigate homogeneous segments • homogeneous segments lend themselves to uniform, profitable service models • dig deep enough to find segments with homogeneous performance

5. QPM Principle #4 • Measure & Evaluate at the Quantum Level • simpler to measure • more direct control • consumes less time / resources • reduces risk of errors • target for high-leverage results • analyze and manage the business at the granular level

6. QPM Principle #5 • Understand and Manage Service Models • make money on everything you do • every segment needs its own profitable service model • service models must fit within the GP/Margin envelope of the segment • profitable segment service models eliminate cross-subsidies, and divert profits back to the company • develop profitable service models for every segment

7. QPM Principle #6 • Manage the Deltas • profit improvement is the main purpose of executive management • focus on profit improvement management can differentiate a company from competitors • profit deltas in customers, territories, product lines and vendors can all contribute • drive profit improvement at the quantum level

8. QPM Principle #7 • Price Strategically for Optimum Profits • price curves are intended to match lower margins to more-efficient high-volume business • loss of pricing discipline puts high-volume accounts at risk, and erodes profits on normal business • smart pricing can provide significant profit upside without risking customer relationships • match pricing to resource consumption & maintain price discipline

9. QPM Principle #8 • Align Goals & Incentives with Net Profit • make sure everyone has the same goals as the company and senior management • make sure incentive aren’t driving dysfunctional or counter-productive behavior • ensure all incentives are based on Net Profit or CTS improvments

10. 8 Principles of QPM • You're making more money than you know. • Manage on net profit – GP is a poor indicator. • Financial averages mask what's really going on. • Measure & evaluate at the quantum level. • Understand and manage service models. • Manage the deltas – they take you to your goals. • Price strategically for optimum profits. • Synchronize goals & incentives.