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Significant Changes Drive Profits: But Is New Information Static or an Important Statistic?

By Donald Mitchell

Republish: EasyPublish™ Published: 11Mar2008 Word count: 429 Viewed: 247 time(s) Get Free Content For Your Site

Profits flow like water over Niagara Falls when you have the benefit of irresistible forces. But when is a raindrop the start of such a stream and when it is it just a raindrop?

Like static heard on a radio during a passing thunderstorm, some random events will always be occurring. If these events don't constitute a shift in irresistible forces, do nothing.

When you gather a lot of reports that could mean something, you need to be carefully discriminating in interpreting the data.

By considering two circumstances differently -- the degree of shift and the duration of shifts in behavior -- you can approach the ideal best practice for locating changes in irresistible forces. If the degree of shift is great enough, it can be an irresistible force even if it doesn't last very long.

For example, suppose you announce a new service to begin in six months, and then orders suddenly dry up for your existing service. Unless you do something now, your announcement will have a large, negative impact on your business.

On the other hand, the degree of shift can be modest; but by continuing over a long period of time, the shift can become very significant.

For example, customer loyalty (continuing to be a customer with the same or a higher level of purchases) dropping by one percentage point a year only becomes a crisis if it continues long enough. Keeping an existing customer is usually at least four times more profitable than adding a new one.

If you have to replace too many customers, your profits and cash flow will all vanish at some point.

You need to expand on that perspective to consider variance from the most you could possibly accomplish in light of the current conditions.

For example, if competitors' customers start buying twice as much, and no more from you, this change won't affect your performance versus budget, but your share of industry profits will become much smaller. Presumably, there was some profitable way that you could have captured some of this increased volume for your business.

A great help in selecting data that are important versus data that are not is to identify areas that have large economic significance and to track them in some visual way (like a graph).

Such visuals are even more effective if they have a historical trend line or the extrapolation of that trend displayed on them. New data falling significantly above or below the trend line can be the first sign that something new is going on.

Copyright 2008 Donald W. Mitchell, All Rights Reserved

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