Profitability Analysis is a crucial tool for enhancing your company’s efforts. You can use your ERP system to determine the profitability of various business segments, such as customer classes and market segments, or you can use an add-on software like Performance Canvas Financials to answer particular profitability questions.
Profitability analysis can be divided into two main categories: Cost-based valuation or Account-based profitability analysis.
Costing-based profitability analysis organizes costs and revenues into value groups. On the other hand, account-based profitability analysis looks into the profitability of individual accounts and uses an account-based valuation method. Predictive and reporting capabilities are both a part of profitability analysis. In addition to monitoring the profitability of existing segments, it can help determine whether a proposed course of action will be profitable.
In most ERP systems, profitability analysis can be applied to user-defined segments, then be analyzed. While nearly all ERP systems offer profitability analysis, the features and implementations vary widely. Some vendors provide a spreadsheet module, while others offer a complete system.
As a general rule, any vendor’s approaches will yield results. You’ll have to put in a lot more effort if you want to get to the bottom of the numbers. A significant advantage of profitability analysis is the ability to harmonize the company’s views of market segments. The results of a profitability analysis can be used by everyone in the company, from sales staff to executives, to see the same picture of different market segments. As a result, everyone is on the same page regarding what is taking place or will take place in the company. This removes a potential source of conflict caused by varying assumptions and allows everyone to get back to work more efficiently.
How to get started with Profitability Analysis
The first step in profitability analysis is determining which market segments you want to study. Your ERP system covers almost every possible market segment. You have full control over what you see. Pay attention to the parts of the speech that impact your life most.
Some information, such as the cost per most profitable and least profitable customers, is helpful to many businesses. Customers’ age ranges are a more specific example of this.
In the beginning stages of a new project, profitability analysis is critical. Profitability analysis can predict outcomes such as market share growth and profits generated if your input data is accurate. It is possible to abandon a project early in the planning phase if the results are not what you had hoped for. Information is only as valuable as the applications to which it is put.
To be valid, the results of profitability analysis must be actionable. You should be able to make adjustments based on the information you gathered. It’s time to put your plan into action based on your findings from the profitability analysis. Applying what you learned from your research to your business is the next step in implementing your results. This final point is critical. Based on your profitability analysis, you should detect changes in the market segment’s trajectory.
A common problem with ERP software is that it does not emphasize profitability analysis, resulting in underutilization. If you look at your ERP system’s profitability analysis features, you’ll undoubtedly find areas where your business can be improved. This is where Performance Canvas can help.
A practical budget workflow, such as rolling forecasting, assumptions testing, scenario planning, and allocations automation, is possible with PCF’s integration with MS Dynamics Enterprise Resource Planning systems or SAP systems. The software also has an excel upload feature.
Most importantly, Performance Canvas Financials has a profitability analysis module allowing you to answer questions like – which products are the top-performing ones and which products are the bottom-performing ones.
With PCF´s profitability analysis module, you can have multi-dimensional allocations for profitability analysis, analysis by product, customer, departments, and more. You can also have automated daily analysis and virtual segments in GL.
Get in touch with our team for a free demo on how this can work for your team.