8 Principles of
Quantum Profit Management
presented by
WayPoint Analytics
Merrifield Consulting
QPM Principle #1
• You’re Making More Money than You Know
o all companies have internal profits
o magnitude of the internal profits can be significant
o internal profits are being diverted away from the
bottom line
o correcting this is completely in your control
o act to identify and retain more of the company’s
internal profits
QPM Principle #2
• Measure & Manage on Net Profit
o Net profit rarely correlates to GP/GM%
o GP/GM% doesn’t account for CTS variances
o GP incentives drive dysfunction:
• GP% mirage
• work against your true objectives
• pits management vs sales force
o GP/GM% evaluation drives poor decision-making
o use Net Profit for decision-making
QPM Principle #3
• Financial Averages Mask Reality
o every segment is made up of components
o component performance can vary wildly
o analyze and investigate homogeneous segments
o homogeneous segments lend themselves to
uniform, profitable service models
o dig deep enough to find segments with
homogeneous performance
QPM Principle #4
• Measure & Evaluate at the Quantum Level
o simpler to measure
o more direct control
o consumes less time / resources
o reduces risk of errors
o target for high-leverage results
o analyze and manage the business at the granular
level
QPM Principle #5
• Understand and Manage Service Models
o make money on everything you do
o every segment needs its own profitable service
model
o service models must fit within the GP/Margin
envelope of the segment
o profitable segment service models eliminate
cross-subsidies, and divert profits back to the
company
o develop profitable service models for every
segment
QPM Principle #6
• Manage the Deltas
o profit improvement is the main purpose of
executive management
o focus on profit improvement management can
differentiate a company from competitors
o profit deltas in customers, territories, product
lines and vendors can all contribute
o drive profit improvement at the quantum level
QPM Principle #7
• Price Strategically for Optimum Profits
o price curves are intended to match lower margins
to more-efficient high-volume business
o loss of pricing discipline puts high-volume
accounts at risk, and erodes profits on normal
business
o smart pricing can provide significant profit upside
without risking customer relationships
o match pricing to resource consumption &
maintain price discipline
QPM Principle #8
• Align Goals & Incentives with Net Profit
o make sure everyone has the same goals as the
company and senior management
o make sure incentive aren’t driving dysfunctional or
counter-productive behavior
o ensure all incentives are based on Net Profit or
CTS improvments
8 Principles of QPM
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You're making more money than you know.
Manage on net profit – GP is a poor indicator.
Financial averages mask what's really going on.
Measure & evaluate at the quantum level.
Understand and manage service models.
Manage the deltas – they take you to your goals.
Price strategically for optimum profits.
Synchronize goals & incentives.