How to Identify High-Profit Activities

Many business owners find it easier to identify what’s NOT working in terms of profitability. What tasks do you constantly find yourself trying to make more efficient? What is the constant office headache? For established businesses, it is common to add products and services here and there, but it’s less common to kill certain activities. It is worthwhile to evaluate whether certain items are worth the time and effort that they take from your core functions (a topic we’ll cover later on this blog, so stay tuned).shutterstock_129051131

Once you’ve weeded out the weakest performers, you can look at how to improve profitability on the remaining items, determining how to allot your limited resources (and identifying where it would be most profitable to expand).

It may also be helpful to compare the estimated costs and estimated sales volume with actual costs and actual sales volume–you may find that what should, in theory, be highly profitable is prone to unexpected additional costs or time constraints that reduce profitability. If you have functions of your business that are less profitable than estimated, this can often be traced to a systems problem.

Oftentimes, the less profitable activities do not have systems, or the systems are flawed. Michael Gerber covers this concept in The E-Myth Revisited; he argues that it is the systems in place are responsible for adding value to high-profit functions. In other words, the difference between a low-profit and high-profit activity is systematic. Owners with a growth mindset will keep this framework in mind as they look ahead to new opportunities.