While you’re developing a strategic business plan, you can identify which products and services to use to grow your company by looking at the financial performance of your products and services over the past several years and matching it up with market attractiveness.
Every organization has a portfolio of products or services that it offers to its customers. That portfolio needs to be managed just like your personal investment portfolio. In the financial world, you buy and sell stocks and bonds to yield the highest return. When an investment is no longer generating a positive return, you sell it and find something else that’s performing with a better return.
Managing your product or service portfolio is no different. Although you probably don’t have as many products or services as you do stocks or bonds and you’re likely to move slower between deciding when to buy or sell, the principle is the same. You want to invest in products and services that are doing well and divest the ones that aren’t.
Without a doubt, every company has one or more products or services that are losing money. The big issue is that most businesses don’t know which of their products and services are winners and which ones are losers.
The primary reason for not being able to figure out the difference between winners and losers is that the monthly financial reports are consolidated. They don’t shed light on how each product in your portfolio is performing. You want to be sure that you’re selling a product or service for less than it costs to produce it, which is called your gross profit. To get beyond your gross profit, you have to dig deeper.