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As a growth-minded CEO looking to scale up your business, your #1 strategic focus should be to meaningfully differentiate your business from the competition at every level of your strategy and within every aspect of your company. After all, if you do things like everybody else, you cannot decisively win. As Verne Harnish points out in his seminal book Scaling Up, “The Profit per X Metric represents the underlying economic engine of the business and provides leaders with a single KPI they can track maniacally to monitor the progress of their business.”

A useful way to think of Profit per X is that it’s your Moneyball stat for your business. It’s the unique way of looking at your business and industry that the competition isn’t even thinking about. (Moneyball: The Art of Winning an Unfair Game is the story of how the Oakland A’s successfully competed against bigger market baseball teams with a much smaller payroll by focusing on unique metrics.)

The Origins of Profit per X:

Profit per X is at the center of three intersecting questions: 1. What drives your economic engine? 2. What are you deeply passionate about? 3. What can you be the best in the world at? The very center of the three strategic answers forms the Hedgehog Concept, a series of aligned, consistent, and supremely executed strategies that create a compound effect over time. It’s called the Hedgehog Concept because it resembles a hedgehog’s instinctive defensive movement of rolling up into a ball, in contrast to the fox, who’s constantly seeking new strategies and shiny pennies.

The Three Intersecting Circles of the Hedgehog Concept
(copyright Jim Collins and Jerry I. Porras)

How to Use Profit per X:

Profit per X is your strategic approach to profit optimization, serving as a vital metric that shapes your business model, even though it can also inform operational decisions for top-performing companies. This ratio operates as a cornerstone within your financial structure, providing guidance for resource allocation choices, such as launching products, expanding geographically, and workforce planning, all with the core goal of maximizing Profit per X.

A crucial point to emphasize is that Profit per X is something that should be uncovered specifically for your business and industry, not settling for the industry norms of measurement. The aim is to craft a Profit per X that distinguishes your company from any other in the industry, as it encapsulates proprietary insights into the core drivers of both your profitability and the industry’s. It’s imperative to safeguard this information as top-secret. If it were to become public, competitors could either replicate it or gain insights into your competitive strategies — potentially developing countermeasures with detrimental consequences. As a result, your competitive advantage would be compromised.

Here’s how to construct the Profit per X for your business: The numerator can be any metric you like — profit, revenue, gross margin, stores, crews etc. However, the denominator is fixed and represents your company’s unique approach to scaling the business. The key is finding an insightful and unique denominator that your competition hasn’t yet discovered is the secret to unlocking profit in your business. Hint: This denominator is typically tied to the Scaling Up’s One PHRASE Strategy (which is the key to making money). It’s really cool how all of these Scaling Up stratagems tie together and support each other!

For example, while most airlines suboptimize for profit per mile or profit per seat, Southwest focuses on maximizing profit per plane, which aligns with its One PHRASE strategy of “Wheels Up.” This is a codeword for 15-minute gate turnarounds, as planes only make money when they are flying. In the logistics industry, FedEx uses profit per delivery route to optimize its courier routes and scheduling. By minimizing the cost and time of each delivery, they can enhance profitability while maintaining service quality.

Sometimes discovering your Profit per X requires some really hard and creative thinking and/or some hardcore data mining. Other times, it’s as easy as looking at your industry or finances through a fresh lens. One of my clients in the construction industry, which is notorious for over-staffing in boom times, simply pivoted to gross profit per month. While this may seem as basic as finding your thumb, the maniacal focus on this single KPI drove a culture shift in the organization to focus on better-quality business, disciplined hiring, and subsequently, industry-leading net profits. This is in stark contrast to many construction firms, who gorge themselves fat on whatever business they can get a hold of, often with disastrous results.

Thought Starters: Diverse Examples of Profit Per X:

To stimulate creativity within your team and ignite the process of discovering your distinct Profit per X, here’s a diverse list of Profit per X metrics from various industries. Use this intentionally varied selection as inspiration, brainstorm with your team, and explore innovative avenues to create a unique Profit per X strategy for your business, positioning it for industry dominance.

  • Profit per customer
  • Profit per employee
  • Profit per product line
  • Profit per geographic region
  • Profit per sales channel
  • Profit per marketing campaign
  • Profit per distribution channel
  • Profit per manufacturing facility
  • Profit per visitor
  • Profit/store
  • Profit/square foot
  • Profit per warehouse square footage
  • Profit/customer type
  • Profit/recurring revenue client
  • Profit/seat
  • Profit/plane
  • Profit/airport
  • Profit per SKU
  • Profit per sales representative
  • Profit per service contract
  • Profit per crew
  • Profit per market segment
  • Profit per lifetime customer
  • Profit per customer segment
  • Profit per store location
  • Profit per advertising campaign
  • Profit per project
  • Profit per supplier relationship
  • Profit per sales territory
  • Profit per manufacturing machine
  • Profit per production shift
  • Profit per inventory turnover
  • Profit per employee hour
  • Profit per production line
  • Profit per supplier contract
  • Profit per distribution center

Next Steps: Ready to start dominating?

Once you have fine-tuned your Profit per X, it becomes a game-changer, propelling you towards breakthrough levels of profitability. As a certified Scaling Up Coach, I recommend reviewing and auditing your Profit per X either quarterly or semi-annually to ensure you’ve uncovered the optimal economic engine. I’m not advocating to change it arbitrarily, but by all means stress test it against new thinking to ensure you’re maximizing the tool’s potential. Similarly, businesses and industries can evolve greatly over time. For example, most software companies like Microsoft and Oracle have now morphed into subscription businesses, thus greatly changing their notion of Profit per X.

A critical examination of your Profit per X can lead to a game-changing outcome by prompting you to contemplate, “What business am I truly in?” Many exceptional companies have undergone a paradigm shift in their business model upon realizing the insights this question can provide.

Keep in mind that Profit per X’s denominator signifies your distinct approach to scaling your business and acts as a pivotal connection point to the other Scaling Up strategy tools, which will aid you in setting yourself apart and establishing dominance within your industry niche.

Ready to play some Moneyball and put more profit on your scoreboard? If you’re ready to be coached through how to develop a winning Profit per X and integrate other Scaling Up tools, schedule a conversation with me today. You can work through these game-changing methods with me in a one-to-one environment so you can discover the right results and accountabilities to unleash your business to the next level of success.

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