Simple Math: 4 Variables That Impact Economic Performance

Simple Math: 4 Variables That Impact Economic Performance:by Chris Hopf

One truth I know about business is that there are only a given number of variables that a business can address to improve bottom line profitability. 

4 Options to Improve Profits :

REDUCE

 - Fixed Costs

 - Variable Costs

INCREASE

 - Revenue / Sales

 - Prices

Many know this and yet few seem to grasp such a simple truth.  The reason I know this is primarily due to my comprehensive background, real world business experience in numerous business environments and being exposed to studies that reveal . . . of the 4 options above, pricing has the greatest pay-off potential.

The below table is from a McKinsey Study and more can be found in the book, The Price Advantage, by Michael Marn, Eric Roegner, and Craig Zawada.

Combining this insight with my interest in Government and Politics, I thoughtfully concluded this must also be the case for Governments and also for Citizens.  In the case of Governments, this is why there is a thresh hold that, once passed, inevitably creates economic realities where higher taxes (prices) are seen as the only means to recover before the hole is too deep.  Fiscal discipline and a proactive approach to a sustainable spending strategy is relevant for Governments, Businesses and Citizens.  It is not emotional it is simple math. 

To pull this thinking together I created the Economic Variable to Stakeholder Impact Assessment Matrix (EVSIA Matrix) to more easily explain and analyze relationships. It includes the four options above (variables) and the three stakeholders (Citizens, Businesses, Government).

Given that the Government is to be of the people, for the people and by the people . . . hopefully the EVSIA Matrix will make more clear the best solutions that will produce favorable economic conditions for all stakeholders and ultimately favoring Citizens above all stakeholders.

Disclaimer:  This is a work in progress.  I have thoughts on additions and modifications but wanted to put it out for others to provide advice, references and comments.  Please, if you are so compelled, contact me to offer your insight, input and comments.  Thanks.

So why does this matter?  Well, given the current events of our time and decisions our Government has made recently and are contemplating , the benefits of profitable economic performance are not limited to business . . . but also apply to a society's citizens and government.  Consider the below benefits with respect to each stakeholder; citizens, businesses and governments.

The Benefits of Profitable Economic Performance

1.  Ability to fund growth

2.  Ability to invest in capital improvements

3.  Ability to invest in research, development and innovation

4.  Pay down and eliminate debt

5.  Performance incentives and rewards to attract and retain key talent

6.  Acquisition opportunities

7.  Contribute to social causes

8.  Sustain market relevance and market value

9.  Rewards and incentives for shareholders

Below you will find examples or click here to download the Excel file.

Below is a draft for a Business Tax Increase:

 

Below is a draft for a Citizen Tax Decrease: