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How To Build & Analyze Your Profit Tree For Maximum Profitability

From automating repetitive tasks to visualizing your sales stages, this guide dives into tips, tools, and strategies that will help you smash your revenue goals.

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Visuals are crucial in business planning. From budget management to sales analytics, visual representations of data help gain stakeholder buy-in, get your team on the same page, and provide important opportunities for revenue analysis.

This is why using profit trees is so important in your business. They provide clear visual representations of the cost and revenue drivers, helping you discover the best path to increasing revenue or cutting costs.

If you want to maximize profitability and take your business to the next level of success, this guide will show you how to build and analyze an effective SMB profit tree.

What Are Profit Tree Worksheets?

Profit tree worksheets are a strategic framework to visually represent the revenue drivers in your business. This visual representation of the costs and revenue streams allows you to better understand the different impacts on financial performance.
Using profit trees, companies can identify key drivers of profitability, focus efforts on areas with the highest potential for impact, and make data-driven decisions for their technology roadmaps.

Why Should You Use Profit Trees?

Without a visual representation of your business’s costs and revenue streams, pinpointing problem areas and opportunities for potential growth is difficult.
Creating a profitability tree might seem like a basic task, but it’s an invaluable tool that gives key insights into the direction of your business. It’s also a great tool for promoting conversations around profit improvement ideas and getting your team on the same page.

How Are Profit Trees Structured?

So, what do profitability trees look like, and how are they best structured? The format differs depending on your industry, but the general structure remains consistent. The key is creating a customized profit tree tailored to your business offerings, objectives, and goals.

Branch 1: Revenue

Your SMB profitability tree has a two-part trunk: revenue and costs. On the revenue side, it’s generally followed by two branches: the number of customers and revenue per customer.
Of course, you can choose attributes based on whatever makes sense for your business and helps your team visualize your end goals.

Branch 2: Costs

On the cost side of your profit tree worksheet, you’ll have two branches: fixed costs and variable costs. Although these usually seem straightforward, it’s surprising how many costs are overlooked.
  • Fixed costs:
    These are expenses that remain consistent regardless of changes to production or sales (e.g., salary, rent, insurance, etc.)
  • Variable costs:
    These are expenses that change proportionally with your production level (e.g., software fees, material costs, sales commissions, etc.)

Profitability Improvement Ideas

The branches coming off costs are profitability drivers. These are elements tied directly to generating revenue and managing expenses – often making them key areas of strategic improvement.
  • Cost Improvements:
    These are your ideas and business goals that will increase profitability. This could include optimizing production costs, reducing operational costs, or managing labor costs.
  • Revenue Improvements:
    Here, you should evaluate your revenue streams and highlight areas for improvement, such as upselling to existing customers, increasing prices, or expanding into new markets.

Profit Tree Prioritization

Now you have ideas for optimizing the key revenue and cost drivers for your SMB profits; you can prioritize them according to the level of potential impact.
Implementing all the changes highlighted on your SMB profitability tree at once is difficult and often inefficient. Instead, rank each opportunity by (potential) ROI and each initiative’s alignment with your strategic business goals. This will show you the most impactful initiatives to add to your technology roadmap right away.

The Step-by-step Guide for Creating a Profit Tree Worksheet for Your SMB

Now you know how to structure a profit tree, it’s time to tailor one to your business. Here is a step-by-step guide to make the process as effective as possible.

Embracing sales pipeline automation will utterly transform your business. According to Gartner Research, companies that automate sales management see a 10% increase in revenue in as little as six months.

1. Get a Proven Template from StackPlan

At StackPlan, we specialize in helping our clients create effective, well-planned profit trees that pinpoint the best areas for growth and improvement. We’ll give you our proven template and help you tailor it to your business perfectly.

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But in this case, we’d love to have your email because we worked pretty hard on this particular worksheet and we know it’ll be a great resource for you!

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2. Brainstorm Critical Components

A profit tree can only be effective if every critical component contributing to your company’s profit is included. Involve key stakeholders and brainstorm ideas, including all revenue streams and cost factors.
You should have roots (SMB profits), branches (cost and revenue), and sub-branches (for each profit and cost driver).

3. Discuss Potential Profitability Improvements

It’s difficult to know how to improve areas without expert help, which is why our software advisors at StackPlans are invaluable. With key industry experience, we can advise you on the best areas for growth and improvement, and our software advisors can recommend the best digital transformation upgrades to get you on the path to success.

How Profitability Tree Analysis Informs Strategic Decisions

Your profit tree effectively dissects your company’s financial landscape. It unravels a multi-faceted web of revenue streams and cost factors to clearly show where your money comes from and where it’s being spent.
This clear top-down view of your SMB profitability drivers helps inform strategic decision-making. From adjusting pricing strategies and resource allocation to pinpointing bottlenecks and hidden revenue leaks, profit trees are an insightful source of data collection and can be used for accurate business revenue analysis.

Get Expert Help Building Your Profit Tree

Whether you’re planning a large-scale digital transformation for your small business or simply want to uncover hidden opportunities to boost revenue and cut costs, creating a profit tree is an essential investment.

However, building a profit tree takes time, diligence, and experience. When it’s time to build your profit tree, consider talking to one of our consultants for expert advice and an objective eye that can see the whole picture of your profitability. Get started today!

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