www.waypointanalytics.com WayPoint Best Practices Library   (Secrets of the World's Profit Leaders)
Why Your Plans Aren't Working: Stop Managing on Margin!

Randy MacLean, President — WayPoint Analytics

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The use of gross profit margin as the main measure of success is one of the biggest management mistakes an executive can make and can do more harm than good when it comes to the success of your business.

Instead, WayPoint suggests a new measure known as NBC. NBC, or net before compensation accounts for both margins and costs, providing a complete picture of profit value. NBC takes into account volume, pricing, and the expenses for the account. Net before compensation is in tune with your business. if volume goes up, NBC goes up. If margins go up, NBC goes up. If expenses go down, NBC goes up.

To figure out your NBC, take your net profit and add back the compensation paid to your sales force. This will give you your NBC number. Divide this into revenue to find your NBC rate.

Instead of basing decisions on margin, with NBC at the core of management discussions you and your people can weigh options not only against revenue and gross profit, but the costs involved with a project or customer.

WayPoint Analytics has the details you need to put NBC to work for you in outperforming your competition.

Audio file: wp-tips_05.mp3