Profit improvement analysis David Goldstein President, Mekko Graphics david@mekkographics.com

Introduction Strategy consultants are often engaged to analyze company profit and find ways to improve it This slide deck (presentation) contains data-driven charts that help to explain company profit and to present approaches for profit improvement The slides in this solution toolkit will provide charting and data presentation ideas you can adopt for your own work Each chart is presented on two slides The first contains an example of how the chart is used The second contains an explanation of the chart and information on how to create it All charts are created using Mekko Graphics; and you can copy, edit, and reuse them in your own presentations

Value Chain Profit Pool The vast majority of coffee profits go to the parts of the value chain with the greatest revenue—coffee processing and coffee shops. U.S. Coffee Industry Source: Gottfredson and Schaubert, The Breakthrough Imperative, Collins, 2008

Bar Mekko Charts for Profit Pool Analysis U.S. Coffee Industry Bar mekko charts can be used to compare profit margin with market size. The area of each segment is proportional to its profit Profit pools divide up profits across the industry’s value chain from raw materials to consumption. This bar mekko allows you to quickly identify the highest margin and highest total profit segments of the value chain. Extra credit: Using two bar mekkos allows you to compare profits over time.

Comparing Profitability with Competitors The largest competitors in the cellular market have profit in-line with their market share. The three niche competitors have relatively higher profit for their size and share. Source: Gottfredson and Schaubert, The Breakthrough Imperative, Collins

ROS/RMS Chart Compares Profitability with Competitors The ROS/RMS (Return on Assets/Relative market Share) chart compares competitor profitability with market share. The normative band highlights the fact that increased share typically leads to higher profit. You can spot competitors that have profits that are relatively high when compared to their market share by looking at bubbles that are above and to the left of the normative band. For more information on calculating RMS see: http://en.wikipedia.org/wiki/Relative_market_share

Product Line Profitability The highest margins come from hot coffee and iced drinks. Food and brewed coffee are reducing company profits. Source: Fabricated data presented to illustrate the chart type.

Bar-Mekko Charts for Product Line Profitability Bar-mekkos can show profitability by product line, plant, channel or region. The bar-width are sales, heights are profit margin and areas of each bar correspond to operating profit. Bar-mekkos can show product lines that have either profits or losses

Sales Versus Profits Iced and hot coffee drinks are the largest product lines and account for a disproportionately large share of total profits. Source: Fabricated data presented to illustrate the chart type.

100% Stacked Bar to Compare Sales and Profits Use a 100% stacked bar with a column for revenue and one for profits to compare the profitability of different product lines, regions, or channels You can identify which product lines contribute a relatively larger percentage to profits than to revenue (e.g., iced drinks, hot coffee drinks and merchandise). Note: all product lines must have positive profits to use this chart.

Profit by Product Line and Competitor My Company and its 4 largest competitors account for over 80% of the profits in each major personal insurance product line. Source: Fabricated data presented to illustrate the chart type.

Profit by Product Line and Competitor Use a Marimekko chart to show how industry profits are distributed by competitor and product line (or customer segment or channel). The chart highlights the level of profit concentration and the relative profit by product line of the major competitors. Note: all competitor by product line profits must be positive to create the chart.

Customer Segment Profitability and Growth Large consulting and private equity firms represent the highest growth and high profit customer segments. Source: Fabricated data presented to illustrate the chart type.

Bubble Chart for Customer Segmentation Use an XY linear bubble chart to segment your customers based on profitability and growth. This will help you target the customer segments that will be the most profitable for you currently and in the future. Use the horizontal and vertical segment lines to divide your charts in high and low growth and profit quadrants.

Profit Improvement Plan Implementing the profit improvement plan will double profits in three years.

Cascade Chart for Presenting Profit Improvement Add a cascade chart to show the potential impact of the profit improvement plan you have developed. Start with current year profit, add a bar for each proposed improvement, and conclude with projected future profit Add a data row to note the priority of each proposed improvement.

Learn More To learn more about creating persuasive charts, download the free Mastering Chart Selection Guide, which includes a 30-day trial of the Mekko Graphics software. Questions or Comments? Join us on Facebook or Twitter and say hello!