How The Business Unit Manager Manages Profits

Critical to every business is the art of managing profits. First, the business unit manager needs to know what the business uses to measure final performance. Usually this implies many measurements.

The business unit manager’s supervisor may walk into a quarterly meeting and suggest new year targets for the unit, saying: “Frank, I’d like to you to increase EBIT by 7% for your unit this year. I know we have a rough year ahead but I want you to create opportunities in our service offering and improve our costs and gross margins. I see much room there.”

business unit manager training on how to manage business profits


Though one can see the supervisor’s loaded expectations, there are many ways to tackle this target. It’s hard to compare EBIT or operating income between two divisions because of varying debt. Companies reward managers having the knack of producing high operating income from a small investment in working assets. Another measure known as NOPAT (Net Operating Profit After Taxes) refines the net income so we can better compare performance in the industry. It’s equal to EBIT times (1-tax rate). Economic Value Added (EVA) is one more measure for business manager performance, which takes off the cost of capital from its account profit. It shows if the manager has been successful in increasing the unit’s industry value.

Now, how should the business unit manager take actions to meet targets? What areas does he need to review with his team? For example:

  • Product Pricing
  • Customer Fragments
  • Product and Channel Ratios
  • Advertising & Promotion budget (Marketing ROI)
  • Competency and number of sales staff, including turnover
  • Assumptions on competitors and economic conditions

Instead of looking back at last year and saying how I’ll do this year better, the business manager needs a “how to” plan, which adjusts for changes in the economy. For example, he or she needs to come up with plans for product launches, sales plans matching market opportunities, manufacturing or R&D plans for products and better efficiencies, where needed. You’ll need to look at earnings, sales, margins and free cash flow. Gross margins need close review. Improving margins is different from preventing margin erosion. If sales can’t come at the price you want, you’ll need to cut costs.

Instead of looking back at last year and saying how I’ll do this year better, the business manager needs a “how to” plan, which adjusts for changes in the economy. For example, he or she needs to come up with plans for product launches, sales plans matching market opportunities, manufacturing or R&D plans for products and better efficiencies, where needed. 

The business unit manager has to work with sales, marketing and proposals, supply chain, R&D and project management to make sure of the assumptions in creating the operating plan. Once he does, he’s on the road to higher prosperity for his business.

Written by Suresh Iyengar, P.E., President, Business Unit Execution LLC––“Explosive Business Coaching Houston Results For Small Business”. Want even faster results? Are you ready to learn? Call 281.410.5375 and speak to your Profitability Coach Houston today!

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