My last article treated the topic of customer profitability—but this is just one dimension of profitability. There are other dimensions too, such as product, channel or geographical. These dimensions can be combined in multiple ways to respond mainly to the questions of What product is sold? To whom is it sold? And how is it sold?

However... did you know that, globally, only:

  • 45% of professionals know how profitable their customers are?
  • 32% know how profitable their sales channels are?

Why is multidimensional profitability relevant?

Today's increasingly tough business environment demands the adoption of a value-based management approach that's capable of providing the various functions of the company with the ability to plan and act based on insightful information:

  • Finance function: Can I further optimise financial resources and support my budgeting exercises?
  • Investment function: Which project is the right one to invest in?
  • Commercial function: Should I reduce prices of the product or rather invest in a few key clients to increase growth?
  • Operational functions: How can I work more efficiently and at the same time keep my high service quality?
  • Legal and Regulatory: Is the new EU directive affecting my business and thus the current cost model?

Existing methodologies do not coherently align strategic intent, value and profitability in a holistic manner for most organisations. With a multidimensional profitability model in hand, organisations should be able to efficiently and effectively analyse business costs as well as income and profitability at multiple levels to make informed business decisions.

What are the key challenges of a multidimensional profitability model?

The multidimensional profitability model faces the following key challenges:

  • Complex business operating models: choosing the adequate dimensions to support key business decisions without creating too much complexity, which requires an optimised approach
  • End-to-end margin / profitability capability: development of a methodology which links costs to associated revenues through the analysis and documentation of an organisation-specific value chain against defined dimensions
  • Development of high quality data and IT solutions: quality and consistent data for defined drivers of activities associated with shared costs / revenue elements and an IT solution capable of delivering a profitability analysis
  • Sustainable business change: working at all levels of the business to ensure stakeholders are suitably informed and engaged in the change process, and developing a performance management framework that makes change sustainable

What are the benefits of a multidimensional profitability model?

Multidimensional profitability helps the business deliver margin improvements and leads to the following key benefits:

How can you implement a multidimensional profitability model?

Here are the six steps of the multidimensional profitability methodology, by the end of which a fully operational model should have been produced for the implementation to go forward:

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.