Product profitability depends on having products that are attractive to customers which can be sold at a profit. Being successful means knowing which products these are.
Although pricing decisions are primarily made in relation to market conditions and competition, financial institutions can decide which products to promote and which to de-emphasise based on their comparative contribution to the business sustaining costs. Some products may look very profitable in aggregate but breaking down the detail to look at the volume and value mix may provide useful analysis for tailoring the product for specific markets.
Product profitability information can also show the relative costs of different channels through which the products are sold or distributed. This will help managers when making decisions about which channels to promote. Product management can use product-by-channel reporting to determine the distribution strategy for a product and the cost effectiveness of the sales and service channels. It can also help the product distribution strategy by better explaining the economics within the channels.
Often the financial analysis is only part of the information that is useful to management. As part of the calculation of profitability volume information by channel for each product will also be analysed. This will support decision making about the relative use of each channel for each product. The organisation can ensure that it is selling the right product through the right channel to the right customers.
This analysis sounds easy, but it is surprising how many financial institutions do not have consistent product definitions across the organisation and even fewer have good cost and revenue analysis. We can help make your organisation into one of the few.
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Analysing Channel Effectiveness
Channel effectiveness is a combination of finding the best route to the customer which is also the most cost efficient.
Product costing is the commonest use of Activity Based Costing and often forms the basis for product pricing and product profitability.
Defining products and services in financial services is often a difficult exercise.
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Profit Improvement Programme
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Product Profitability - Calculate Income
Components of Product Profitability include; revenues, funds transfer prices, operational costs, bad debt provisions and claims. Second - calculate net income
Product Profitability - Provisions &
Components of Product Profitability include; revenues, funds transfer prices, operational costs, bad debt provisions and claims. Finally - Provisions and Claims