How do you really measure product profitability? This is a question which gets a lot of answers by different professionals and business people, and honestly, it’s hard to say any particular answer is right or wrong, with the exception of obviously preposterous ones.
So, in light of that, is there a sure fire, generally applicable way to measure product profitability that gives you bottom line, hard data? Well, it may seem like this is something that people kind of fixate on, but given that the bean counters we all answer to demand ROI metrics on everything, including supporting various products, well, it’s something we fixate on for a reason.
Well, I can’t claim to be the all-knowing oracle who can give you a guarantee, but I can at least tell you what I’ve found to be effective metrics to go on.
#1 – Customer Wins and Loyalty
This is probably the more obvious and easy one to go with. Basically, you factor in here how many customers you acquire per fiscal period, as well as how many you retain. This, alongside market share acquisition against known competitors gives you a good view on whether or not the product itself is actually successful on the most base level.
This isn’t enough to give you a sure stance on positive ROI and through that, profitability, but it’s one of the bigger metrics that can contribute to it.
#2 – Cost-Effectiveness
I mentioned wins and loyalty first, because this metric can’t be taken without first having that information to work with. This is basically a measurement of the overhead in ratio to the market share and customer wins and loyalty.
Overhead includes employee costs, shipping and production, customer support, and all of that. Are you getting more out of your share of the market and your customer wins, than you’re putting into the overhead? By what margin? Well, what a good margin is depends on your company’s standards, naturally.
#3 – Online Analytics
At one point, getting the analytical data from online sources like Google statistics into a hard data form you could work with was impossible, but now, various software solutions you use to track your product lifecycles and customer relations management support ways to get this data into workable data. This data can be very helpful in seeing if your product is profitable, because it’s a good way to see if awareness of your product is proliferating well, and being met by positive reviews and discussion.
It is also a good way to see how much interest there is by seeing how much your product type is being searched for on search engines. Customer positivity and customer interest directly show how profitable a product is, along with the hard numerical data above. Without customer interest and positivity of a certain level, then the product’s profitability is suffering due to the lack of potential for customer acquisition and sustainable wins I mentioned in the first point.
These are probably the easiest and most logical metrics to measure product profitability, but there are a lot more of them. Maybe in the future, we can touch on them, but they’re less easy to come to grips with, and less immediately practical than the ones I’ve discussed here. Good luck!