Does Your Financial Model Drive Growth?

Does Your Financial Model Drive Growth?

Working with many companies looking to grow, I am always surprised how many have not built a financial model that drives growth. I have mentioned before a financial model that drives growth? Here I am basing on Jim Collin’s Profit/X, which he laid out in Good to Great. So then we have to delve into what is Profit/X. This is the key financial metric that drives profitable growth by defining some profit number per some “X” that results in:

Passion. Your employees are passionate about the “X” and excited about increasing it.
Empowerment. Your employees are empowered to make decisions to ensure the baseline Profi/X is met.
Drive. It drives behavior to generate profit and growth.
Discipline. It provides the financial discipline to ensure that the organization remains profitable as it grows.

Thus is it is your Economic Engine that will enable profitable growth.

Many people look for a quick answer in determining Profit/X, but there is no quick answer. It is an iterative process that will get there, but no something you necessarily come up with on the first try.

Profit can be:

  • Gross Profit,
  • Operating Profit,
  • Net Profit,
  • Gross Margin,
  • Operating Margin, or
  • Net Margin,

to name a few.

“X” is very variable and can be:

  • “Product/Service,”
  • Customer,
  • Invoice,
  • lb,
  • pallet,
  • truckload, or
  • plane.

For a better understanding of Profit/X, my video below may help explain it better.

Profit/X

It is well worth your time to develop your Profit/X and get your employees to understand it and embrace it. The discipline it provides combined with the drive and empowerment it delivers makes a very strong economic engine and ensures continued profitability through your growth.

 

Copyright (c) 2021 Marc A. Borrelli

 

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