GUIDE
Profit rises when a business sells more of what makes money, charges properly for it and stops spending on what does not.
The first job is to find out which customers, products and channels earn the profit, and which only add revenue. The order of action follows from that.
A practical guide for UK food and drink brands.
Discuss your challengeFIND
Which customers, products and channels earn the profit.
ACT IN ORDER
Terms and promotions, price, range, channel, then operations.
AVOID
Growth that adds revenue but not profit.
A food or drink business can grow sales for several years and earn less each year. It happens when growth comes from the lowest-margin customers, from heavy promotion, or from channels that cost more to serve.
The signs are familiar: sales up, profit flat, and cash tighter than the figures suggest.
Revenue is easy to see in the accounts. Profit by customer and product often is not, which is why the gap can go unnoticed for years.
Rank customers, products and channels by the profit each earns after discounts, promotional funding and cost to serve, not by sales.
In many food and drink businesses a small number of customers and lines carry most of the profit, and a long tail carries very little.
The tail is where the fastest decisions are. Some of it can be repriced. Some can be put on minimum orders. Some should be stopped.
Terms and promotions. Check that every rebate, funding line and promotion still pays back. This needs no new investment.
Price. Raise it where cost increases justify it and the evidence supports it. Present options, not just a number.
Range and customers. Stop, reprice or set minimum orders for the lines and accounts that earn least. Put the effort into the ones that earn most.
Channel. Move volume towards the channels that earn more per unit and cost less to serve. Foodservice, wholesale, convenience and export each have a different profit shape from a supermarket listing.
Operations and overhead. Yield, waste, line efficiency, run lengths and shelf-life write-offs. The gains are real but slower, and they count most once the commercial side is in order.
Promotional funding that does not pay back. Listing and range costs. Shelf-life write-offs and returns. Distributor and wholesaler margin. Fines and chargebacks. Input cost rises that were never passed on.
Cost is within the business's control and price is not, which is why cost comes first in many plans. It is also why many plans stall. The easy savings are taken quickly, and what remains cuts into quality, service or shelf life. Pricing, terms and mix often hold more profit than the cost line.
Margin is the share of each sale left after a given cost, such as the cost of goods. Profit is what remains after all costs, including overheads. A business can improve margin and still earn little profit if overheads and the cost of serving customers absorb it.
Look first at the customers and products that earn least after discounts, promotions and delivery. Reprice them, set minimum orders or stop the worst of them. Then review promotional spend and trade terms. These changes need no new investment.
Usually both, in a set order. Review terms, promotions and mix first, because they can move profit without changing the shelf price. Raise price where cost increases justify it and the evidence supports it. Cut cost where it does not damage quality, service or shelf life.
Discuss your challengeThe Commercial Diagnostic scores a food or drink business on pricing and trade terms, channel mix, range, readiness and sales capability. It shows where profit is made and where it is lost, in a written report delivered five working days after the documents arrive. £950.
See the Commercial DiagnosticRelated guide: How to improve margins in a food or drink business
Related guide: How to reverse declining sales in a food or drink business
Related service: Commercial growth and sales strategy
