Profit Margin: End Goal Or Outcome?

Posted by Neil Davidson on August 7, 2014

operating profit margin

Financial goals and objectives are achievable when you analyse, plan and implement integrated strategies by allocating the most appropriate resources.

The goal of most companies is to constantly increase their profitability on an annual basis, but this can only be achieved if all functions are aligned with each other. In companies which make their revenue from delivering projects, this is particularly important.

Breaking down silos

Even so, operating profit margin improvements are not just your sole preserve; you have the collective responsibility of aspects such as delivery teams, operations, sales, marketing and finance. An Enterprise Resource Planning (ERP) system makes it possible to remove the traditional silos that exist between these organisational functions - allowing finance in particular a means of analysing and monitoring the financial performance of sales, delivery teams, operations, marketing and corporate strategies - as well as the success of each project or account. With this data it becomes possible to focus on what is working, what is most profitable and to make strategic adjustments.

Tips for increasing profits

Part of this process should always be about the objective of increasing profitability by a certain percentage during the financial quarter, half-year or annually. Having an objective permits you the constant measurable analysis of key performance indicators, allowing you to create a higher level of financial visibility. You can measure your goal on the basis of having achieved it - you can define your outcomes by defining how your organisation will reach its goals and objectives.

Here are some other tips to consider:

  1. Align your ERP system – By ensuring that your ERP system feeds into every aspect of your business it’s possible to find efficiency gains; analyse your most profitable markets, strategies and customers; and it becomes more readily possible to improve financial reporting and operational collaboration as your finances will be linked to each individual project that your company works on. Project-based ERP is the best solution as it is designed to match up to all aspects of a Professional Services organisation.

  2. Define a roadmap – By having a strategic roadmap, you can ascertain what you want to achieve and how you are most likely to get there. You can also model your income against your expenditure and your capacity to deliver with the resources that you have at hand. Make sure that you keep a cash reserve held back to survive difficult periods.

  3. Analyse your resources - Determine whether you need to hire additional people or buy other kinds of resources to help you to meet your financial goals and objectives. For example, an outsourcing strategy might help you to increase your capacity and ability to meet your organisation’s financial ambitions. This will impact positively on your operating profit margins.

ERP: a robust financial engine

Professional services firms use ERP systems because they offer a robust financial engine that enables you and your directors to gain complete visibility, control and assurance of the financial stability and profitability of enterprise operations. With ERP systems you can determine the return on investment (ROI) of certain functions and activities. Subsequently a process of ongoing improvement can be implemented to increase operating profit margins.This will help you to achieve your main goal.