Knowing when to cut a product


October 16, 2019 11:16 am Published by

Businesses looking to improve their profitability may need to consider cutting under-performing products and services that are unnecessarily draining resources. It might be time to discontinue if a product fits the following scenarios:

  • Low profitability.
  • Stagnant or declining sales volume or market share.
  • Maintaining your market share is too costly.
  • Risk of technological elimination.
  • Poor fit with business’s strengths or declared mission.

When deciding whether to discontinue a product, there are a few ways you can examine your services and make the decision that is best for your business.

80/20 rule:
This rule states that businesses should focus their attention on the 20% of the products that generate 80% of revenue. Using this principle, companies should compile a shortlist of the products and services that bring in the most profit and scrutinise the products that fall short of this mark.

Trial run:
Try going a week to a month (no longer) removing all promotion and marketing for a product. This can help the business to visualise what it would look like without that service and see if there are any clients who miss it.

Harvesting:
Cutting the costs associated with the business or increasing the price of the product without increasing production or operation costs allows the business to continue generating revenue on a failing service. Once the product ceases to provide a positive cash-flow, it can then be discontinued.


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