Insightly_Ep05_final
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Alyssa: [00:00:00] Welcome back , everybody. Thanks for joining us. I'm really excited. We are going to start a mini series, if you will. They're not going to be directly in order, but over the next handful of episodes, we're going to be talking about innovating using data and we're going to be talking about four different areas of ways that you can innovate using data and we're going to start today with Innovating in your profit model or profitability. We're also going to be talking about innovating in sales and [00:01:00] marketing, innovating in customer experience, and also innovating in your product offering. So, stay tuned. These will all kind of have the same flavor and feel as we dive into them over the next handful of episodes.

So, today we're going to talk about profit model, which sounds boring maybe at the beginning, but stick with us. It's going to be really exciting and I think when most people think about profitability, they think of, is our company profitable

Now, maybe not CFOs but most people are like, are we profitable?

Are we in the red? Are we in the green and the black,

But it's so much more than that and I really want to dive

into how we can use data to understand the deeper levels of profitability in a business. So like understanding profitability by sales channel, by product type, service line. One that I've been recently nerding out on is the employee service mix. So, project types for certain [00:02:00] employees that cost you more than than others. I'm excited. But, Jordan, profitability, what's your first impressions when you hear that?

Jordan: Well, I mean, as a business owner, I care about profitability but especially when you're talking about like the employee and service mix. I mean, that's very relevant. In the world that I live in outside of my own business and previous lives, you know, I've worked at marketing agencies, I've worked in house marketing teams for corporations and at least in like the agency concept or now my consulting firm that I have having the right employees or the right experts on the right service can really make or break how much time and budget you have to put into a set of work.

And so, for me as a whole, profitability is how you kind of have,~ like,~ that gauge on how well your business is doing but like you, I've been starting to, over the last,~ like,~ couple of years, really diving into the deeper levels of profitability to find [00:03:00] opportunities. And so, ~like, ~I don't even,~ like,~ I, when you say profitability, I don't think of it initially as just a metric for your,~ like,~ business success or a, a key performance indicator that you'd want to look at.

I also think of it as, okay, based on profitability, what opportunities do we have in front of us?

Alyssa: 100%. And I think with those opportunities, there's two sides of the coin. There's how can we identify what is most profitable and double down? And also how can we enhance profitability? So I guess there's a three sided coin.

I take that back. How can we enhance profitability in things that there's a lot of room to grow profitability because maybe there's some low hanging fruit and then on the third side of the coin what are things that we just need to stop doing

Jordan: Yeah.

And you know what I actually love those insights like its kind of like when your creating a checklist you always put to something on the checklist that you can immediately check off? I [00:04:00] love it when you can identify,~ like,~ this is just not working and it does not make sense for the customers that we serve anymore.

Let's just stop doing it. Let's transform that energy and that budget into something greater and better because nothing is more disappointing than just trying to kick a rock down the road and get nowhere.

Alyssa: Yes. Yeah so

I think there's innovation truly to be found maybe in the first two more so but I mean growth definitely to be found in the last one of just hey let's just let's just stop.

Jordan: I mean, I think that is innovative, because, you know, maybe on the onset it's ~like, ~it's not working, and here are some reasons why that give us clear visual of it's, we just need to be done but in other cases it may not be a clear answer, and so you can at least develop some assumptions and test against those to see what your possibilities are but if anything, it is still an opportunity to innovate in [00:05:00] your business, whether it's you find a way to make it better or you find a way to transform again that time and budget into something that really could transform your company.

Alyssa: And I think all that is great, but the first hurdle to overcome is actually getting to pro how do we actually truly understand profitability at that more granular level?

So I want to start by talking about challenges that we may come across or companies may come across when trying to understand profitability because it's just like everything we talk about. It sounds really great.

Jordan: we all want

Alyssa: We all want it. It sounds super awesome, but there are, you know, legitimate challenges.

Jordan: Yeah what are those?

Alyssa: Good question. I think one thing is that COGS, or cost of goods sold, isn't always straightforward. I think sometimes it can be, especially if you're, you know, offering consulting and services and [00:06:00] a product.

Jordan: I think professional services is especially a category where this is difficult. I mean, in my world, like the hourly billing model is kind of common, but I go both ways where I have some, you know, companies that I am on an hourly billable model for just based on like business and, or you know, budget constraints and whatnot, or just needing to kind of keep an eye on things.

But on the flip side, I love project rates because I really do not like tracking time. Just to be fully honest, I don't like tracking I like doing the work so much better. So then you have these project rates, but if you're not tracking your time. How do you know if the project rates are on budget?

And then there's a lot of like little things in between that is not physical, tangible, deliverable, you know? And so, in that case, I'm having to factor in admin time, coordination time, actually doing the [00:07:00] project itself. But even then, it's not like we're developing a product. We're performing research, we're performing analysis, we're providing recommendations and presentations and like playbooks and deliverables of that nature.

It is very difficult to really fully understand your cost of goods sold and in a lot of cases like at least in my world you kind of have to go off of like market comps like what's the market doing to know ~like ~what is palatable for a client?

Alyssa: And to that point, we've come across challenges in companies allocating their overhead costs as well to determine profitability. So like how does you know this piece of software or this marketing effort or this, whatever the overhead cost may be, how does that factor into profitability?

And how do we choose how to allocate those costs? And a lot of times they haven't maybe gone through that exercise.

Jordan: How have companies done that? Because again, if I'm [00:08:00] thinking about my own business and I'm thinking, okay, our transactional data is in QuickBooks.

Our line items don't necessarily, like I don't have a line item for a research tool that I use. The research tool gets used within a certain set of projects. In the way that I have put together those like project rates, I kind of bake in that fee a little bit, but it's not a, I guess, line item that gets added.

So in that case, would it be that you would add that line item fee to be able to track that?

Alyssa: What we've seen most commonly is that they apply a percentage of overhead costs to every customer. Unless, which is another point I was thinking about, is unless a certain cost is only applicable to certain clients.

Jordan: Oh yeah, got that going on too.

Alyssa: Yeah, so like we, we had a tool that took unstructured data and made [00:09:00] it structured data using AI.

We only used that tool for ~like ~three clients. So we only applied that tool for profitability analysis for those three, but then there's also, you know, overhead costs, and I mean, we and other clients we've worked with have chosen to just say, hey, we're just going to say 10 percent of our total overhead costs is going to be, you know, applied when we're looking at profitability, but I think the main thing is just deciding and choosing and making that, consistent across your whole analysis.

Jordan: So, in that case,~ like,~ rather than getting that analysis paralysis or,~ like, ~overthinking the, this client versus that client, it's almost like taking a median overhead value and just kind of applying it across the board knowing ~like ~and I mean that would totally make sense in like the professional services world because again, like you even like different projects within the same client can you know, maybe put in more time in one and [00:10:00] different tools for one versus another, you know line item and so things do even out over time when you're working together

Alyssa: Right.

Jordan: But I like that idea of kind of like exploring things from that median value just so that you do kind of have ~like ~that average to at least start

Alyssa: with.

Yeah. And I think you're right professional services is probably, one of the more complex, because it's all just people doing things for people.

Jordan: Like you're just, you're charging your brain, which is very weird to me.

Alyssa: But I will say there's other industries where that's applicable in a different sense. So like we work with a home health company and they're waiting through insurance. They're waiting through a bench of contractors to determine profitability and one thing is, you know, some patients need PT or OT. They contract that out but that cost does not apply to every single patient type. So they only, so just as, we would only apply maybe a research tool to some, right? They only [00:11:00] apply like the PT to some patient types, but then they have to know which patient types require OT or PT. What's the rates for the PT contractors?

Is that going through insurance? How many visits by the PT is the insurance covering?

Jordan: Oh gosh.

Alyssa: Yes. So I mean, there's just varying degrees of complexity with different industries.

Jordan: Yeah, so in that case,~ like,~ you have to build the model before you can actually build the model to show you what that would look like. ~Like, ~I imagine there's a lot of whiteboarding happening to kind of align those scenarios, but I guess,~ like,~ is it really that complicated or maybe this is a super oversimplification, but even in that context, I guess, ~like, ~if you are, if you do have kind of like these aligned items, whether it is a contracted out service and the rates and how insurance or professional services side, different tools and levels of engagement, you [00:12:00] could still maybe simplify that just by ~like ~cohorting those scenarios to kind of look at those individually, right?

Alyssa: Yes. And you have to be able to apply that to your data. Yeah. Which I think then is like maybe another challenge. So how do you apply the different pieces of the profitability to the data points?

that you're collecting?

Jordan: ~Like ~what kind of data points? Give a few examples.

Alyssa: Well the

cost that passed to the customer.

So like how much the customer pay?

How much is the insurance paying? And then, I mean a lot of that is financial. I mean it is all financial then you know, when does the insurance pay? Because we're also looking at accounts, accounts receivable. And then, you know, so there's payments coming from different parties and there's also invoices coming from the contractors. So, [00:13:00] I mean, a few of those

of moving different data points that have to be, as we, you know, have talked about,~ like,~ seeing the business model, looking at the data with the business model lens. I think this is applicable here, but then you got to get into the data.

Jordan: Yeah. Yeah, you definitely have to have that formula of how do you calculate this across the board or even within certain cohorts to understand at least like where the trending line or where the trend lines are going?

Alyssa: Yeah, I think, yeah,

Jordan: that's, yeah, I mean that is a, that is a complex challenge, but I think, I mean, it's doable. Obviously it's doable. A lot of companies actually do this. They have these like algorithms and these formulas in place already that are helping. I mean, that's where predictive analytics comes into play where you're really trying to, like you said, look at the data through the business model lens and you really have to blow the business model up to really see like the differences in where client segments can [00:14:00] kind of scale out.

Alyssa: Yes and I think that it's just it is more challenging than meets the eye. I think I'll just leave it at that.

And a non financial challenge would just be the assumptions we carry into that.

Looking and just assuming that the highest revenue customer

Is going to be the most profitable. I think that's an easy assumption to make. ~Like, ~oh, they're our best. People use that term,~ like,~ they're our best customer. It's ~like, ~what do you mean by best?

Oh, well, they're paying the highest monthly rate every month for five years.

So they're our best customer. But that's not answering the question about profitability.

Jordan: I get into that a little bit with some of our clients where not getting into ~like ~a debate over it, but that is a common question that is becoming more common in meetings that I'm in of what does a profitable customer look like to us? And if it's not just based on highest revenue, what does that mean? Like in some industries you can't judge profitability based on how much they [00:15:00] put in to, or how much they're buying, right? ~Like ~there's like memberships. You know, like everybody kind of comes in at the same level of membership. You know, maybe you have a 500 dollar package that a lot of people are buying into.

You're not going to find like the most profitable customer that way, just based off of ~like ~the revenue that they're bringing in but maybe they are like super engaged in your membership. Maybe they're referring other people into the program that have turned into quality leads. So there is that element again, going back to ~like ~the business model, you have to understand like beyond just the initial dollar value, what creates a good customer for us? Like what is just a great customer look like?

Alyssa: Yeah, and I think part of that is, you know, get the whiteboard out and ~like, ~what is the most valuable thing to our business growth? And how do we translate that into incentivizing our customers to do it or highlighting or rewarding the ones that already naturally do it because it's not just about dollars in.

Jordan: Like in the data [00:16:00] use scenario that we just went through but that data use case that we went through where we were looking at the two different segments, healthcare versus manufacturing, and the client wanted to move forward on more manufacturing because they was turned into retainer clients.

Looking at that segment from like a profitability model to then understand like some of their attributes can then help you find other customer profiles that might look like them that aren't just manufacturing but then to your point, ~like ~reward them for their loyalty, if they've made it past that project phase and now they're in that ongoing relationship with you, how can you find maybe like value add scenarios?

Like I think in like engineering and like manufacturing type companies that are very B2B especially from ~like ~a consulting perspective, a lot of those projects or a lot of those jobs really are project based. There's an end date. If you've done your job well, you should not need us [00:17:00] anymore. You know, kind of a thing, but there might be a point in time where you want them to come back.

So how are you adding, providing that value add with them? Maybe it's like a webinar that only they get in on or. Maybe it's like an annual client meeting that they get invited to or, some of those kind of like more marketing tactics are value ads that help you get more information about your customers and also help them increase their profitability with you over time.

Alyssa: Yeah. I thought the options are

endless once you can identify profitability in segments and then the activation on that becomes the the fun part right?

Jordan: Activation is pretty easy to figure out once you have ~like ~a story to operate off of.

Alyssa: Don't downsell yourself for what you do, but I think, I mean you're right, the hard part is making the decisions, getting the data, and getting aligned, you know? And I want to talk about once that profitability is

Jordan: Identify.

Alyssa: [00:18:00] Identify yeah, what are some innovative opportunities that a company has?

to build off of that and I think one that comes to mind is kind of a, we talked about at the beginning is like that third is ~like, ~this is low hanging fruit, axe this service, axe this product. Like the home health company, once they could identify their most profitable patient types, they really took a down a notch on any side of marketing or outreach or relationships that brought in the least profitable customer type. Yeah, so I think that's,

Jordan: I think it is an innovative tactic if you can identify,~ like,~ if you're getting a lot of leads for a product or service that's not profitable, when you're talking about like maybe that product mix that people engage in if you're getting a lot of leads for a service that is not profitable to you, then the innovation or the activation point of that becomes, okay, is it a lead a loss type of tactic that if we do this, we know that we're going to take a hit on it, [00:19:00] but. majority of the people who engage us on this end up going on to the more profitable services, then maybe it still makes sense, right? Or is it we're just getting a lot of leads for the wrong type of services that is not profitable and there's not really a way for us to make this service more efficient.

So maybe we should pour our budget and our energy into the other places where we do see profitability and I think going back to our earlier point of understanding what profitability looks like, I think also looking at like employee efficiency, but also employee satisfaction at some times can also help uncover that ~like, ~I mean, there, there can always be some clients that you're like, okay, I really want to serve you, but this is not to our team's expertise or where our team is most aligned.

Alyssa: Yeah, that resonates for, you know, for us personally at, with InfoFluency. We have realized that there was a commonality in the type of analytics that customers were asking for, and we still do fully custom, [00:20:00] and I think we will probably forever do that, but putting together templates, for lack of a better word, that is a jumping off point that is more efficient for our developers to do.

put the data in and customize from there, that makes the project more profitable and lowers the cost for the customer and we wouldn't have known that without looking at what type of function are most of our clients looking to analyze? What specifically, quite what specific questions are they asking?

And a lot of that was around revenue and customer segmentation. So, ~like, ~okay, now we have a whole set of dashboards that is a jumping off point that we can, personally, we can maximize the profitability of, and it's a better spot for them to start too.

Jordan: We had a similar scenario as well with our marketing analytics dashboards, where a lot of times when [00:21:00] we're talking to clients, they have like an idea of what they kind of want to see and what they need to report on. But they don't know how deep they want to go into it. So we also have a set of templates that we can start off with we can connect their data easily so that we get like that jumping off point, like you said.

But the thing that I love about that transition is yes, that made it a profitable like product or service of ours, but it opened up the door for us to actually have more consultative conversations that have led into, okay, here's our jumping off point, but now let's have a conversation. Let's like have an education or a workshop around key performance indicators and benchmarking.

Let's look at ways that we're reporting to different team members. So for us, it actually got a lot more fun because it wasn't just trying to provide the metrics. In a way that need to be visualized, it was starting to create additional opportunities for activation [00:22:00] or strategy optimization and the world that we just absolutely love being in 24/7.

Alyssa: Well, that's cool cause it can, it allows the company to do what they do best because they're not bogged down by the profitability of the setting up.

Jordan: Yeah, we're not in the business just to sit there and build dashboards all day. We're in the business to help you visualize how your sales and marketing is performing and help you uncover opportunities and then, optimize for success.

Like we want to help you create action. We like the action too.

Alyssa: which is funny because we are in the business of building dashboards for people, but there's the data strategy as a whole and the business questions and the more consultative approaches is the fun part.

Jordan: and it's also super valuable because that's the whole reason why we're doing this podcast as well. ~Like ~as we've talked about in nearly every episode so far, there are a lot of complexities and challenges that just require brainstorming, collaboration and strategy [00:23:00] time and you know, we just had this conversation where we were talking through like a client proposal the other day of the client really wanted the solution down on paper already, but you can't identify the solution if you don't know what the data points are yet.

And so, ~like, ~thank you, by the way, for,~ like,~ counseling me through that scenario. But it's, you have, that's where,~ like,~ the fun, I think, really is, is it's that planning and that visualizing,~ like,~ opportunity to test assumptions, uncover opportunities, and see what your best direction really should

be.

Alyssa: Any other profitability action items that come to mind for you?

Jordan: Well, I think the cool thing about , really looking at profitability as a way to drive innovation in your company, is that profitability, as you mentioned at the top of this episode, it really infiltrates every aspect of your business. It is the, types of clients that you target and grow.

It's the [00:24:00] sales channels and marketing channels that you activate, the budgets that you apply to those things and I love the point that you made earlier about that employee and service mix ~like, ~especially as we're looking at things like talent retention and acquisition, which is important for every company out there, really understanding where your team's best skill sets are applied for that company or for that customer growth, I think is, is a really great insight to take away from some of this is that profitability isn't just the number that your company is like growing or not growing. It's how can you create efficiencies and allow each division within your company to become a little bit more innovative to help create and grow profit.

Alyssa: More that came to mind for me were, maybe it's as simple as managing the vendors or the other people that provide services to you. Maybe you need to negotiate prices, maybe you need to switch to a different vendor. Maybe it's a [00:25:00] pricing conversation.

Maybe we need to, if there is a service that requires a really high, I mean, speaking of service employee mix, the reality is is that some services are going to require the most expert employee. And if they want, That service, it's done by this probably your highest

Paid employee, then maybe you need to look at adjusting the price for your service or your project.

And I think, there's a whole world of pricing theory stuff that we're not going to get into but maybe that's a, that's a conversation. You know, we talked about marketing, directing your marketing budget towards your most profitable customer cohorts or your most profitable service lines.

Jordan: I mean, once you know that, I mean, that opens up to who are we targeting, and especially because we're really living in more of a first party data type of sales and marketing activation world today, like knowing who those customers are can really help you [00:26:00] find the right channels, the right budget mix, even down to what creative and messaging are you using in these ads or in this promotion or how you're sending that email or how do you mix the, you know, human touch point with the online touch point?

If you pour your energy into those people, you get a better outcome usually and it's not an awareness tactic at that point. It's like you're really nurturing people that you already know or you're finding people who look just like them.

Alyssa: Yeah. Well, I think that's all the time we have for profitability. If you have any questions, if we missed anything related to innovating in the profit model, email us. We'd love to hear from you and know what we should talk about more as far as profit model. I'm sure we missed something, but reach out at hello at insightlypodcast.

com. Shoot us any questions you have related to profitability strategy, sales and marketing strategy, data strategy, anything. We'd love to hear from you. And we'll check you on the next [00:27:00] episode.