Understanding product profitability is one of the most vital insights business leaders need for steering their firms in the right direction. Knowing which products are most profitable can help them allocate their resources to their best advantage. From predicting the cost-effectiveness of new products to optimizing that of existing ones, this exercise gives them a clear picture of which products they must scale and which to trim down.
Determining product profitability demands effective measuring of factors like cost of goods sold (COGS), logistics, discounts, product combinations, sales commissions, etc. Apart from this, data about the different customer segments buying these products, their acquisition costs, the frequency of these purchases, etc. all play an indispensable role in calculating actual profits.
While most companies possess troves of such valuable data, streamlining it to derive actionable insights requires the right framework, methodology, and technology. For instance, low-margin products can get veiled behind high sales volumes, and vice versa. Here’s where product profitability analytics acts as a true litmus test.
A case in point
Our client, an energy drink manufacturer based in the US, wanted to understand which of its product categories attracted the most number of customers with long-term value.
Analytics helped the client:
- Compare the number of customers each product category brought in
- See how many of those customers came back for a repeat purchase and how much they spent
- Identify real profit-driving customers – those who bought products with high margins and came at low acquisition costs. It found that products that brought in a lot of customers contributed little to their profit margins.
The client used these insights to:
- Make their popular product combos more profitable through informed pricing and product changes
- Stimulate the sales of under-performing products by knowing which products to cross-sell and upsell
- Launch more attractive offers and product bundlings
What gets measured gets managed
Product profitability analytics comprises of a plethora of KPIs (Key Performance Indicators). These differ by both your business goals and industry. Also, understanding what data to gather and what methodology to employ to get the answers you need is crucial. Given that most data systems are complex, aggregating and preparing the right data for performing analytics is a challenge that most organizations face.
Netscribes helps leading brands across industries solve complex business problems through bespoke analytics solutions. With over two decades of experience in providing data analysis services to some of the world’s largest companies, we are your best partner for not just obtaining actionable insights, but also gathering and preparing data in a way that ensures that the insights are reliable. If you’re looking to apply analytics to solve your business questions, write to us at email@example.com