Mike Bergthold, Optima CFO, discusses a successful cost-cutting project and describes the approach many companies take which leads to far less favorable outcomes.
Our client is a producer of high-end fresh and frozen baked goods. They've been unprofitable for more than 10 years, and were being spun out of a larger organization, and facing closure. Our team was quickly able to produce a customer and product profitability matrix based on activity-based costing techniques that showed them exactly where they were making their money and where they were losing their money. Our recommendations included variable-based pricing and focusing the attention of their sales and marketing team on their most profitable customers.
The results were dramatic. In less than two months, this client was able to achieve profitability for the first time. They lost 20% of their customers by number; revenue didn't drop one dollar. For the next five years, their compounded annual growth grew by more than 40% per year.
So, how did this happen? Why were they successful? They did a thorough financial analysis, they developed a solid strategy, and they executed quickly.