Streamlining the product portfolio
So far we have covered what we can call the mechanic measures. From there we move on to more strategic measures. Our first stop let's us look at your product or service portfolio.
You can discover low hanging fruits by gaining a proper understanding the mix of the products or services that you offer
This is about understanding where you earn and where you loose money. This is the essential ingredient of the private equity toolkit
Try to understand which products or services you earn most with. And which ones you earn least with.
If you have the data available, look at the gross profit for each product or service type.
If you don’t have the numbers, do some plausibility calculations to get an idea of the ballpark.
Try to put a number to the percentage of revenues and profits that your top products account for. If for example, 20% of your products generate 79% of the profit, then you already will have a pretty solid idea of where your focus will lie.
Understanding the gross profits helps you see which of your high margin products are most hit by the crisis, and which ones are least hit.
Now think through the options this understanding leaves you with.
Which part of your profits is at risk, and which part provides you with stability?
For example is there a way to push the high margin products, which are least hit by the crisis?
Or is there an opportunity to discontinue business that comes at unattractive margins? A wide product portfolio causes complexity costs. Think about possible types of costs that derive from the variety of products or services that you offer. Could cutting off unattractive businesses reduce the complexity of your business?