People complain about the profitability of products, especially early in production, but how often do products actually miss their profitability at launch?
According to the latest research by Hiller Associates, most companies miss product cost targets. We asked almost forty people from a variety of corporate functions “How often do you meet or beat product cost targets at launch?” The results follow the familiar 80/20 rule of many business phenomena. On 17% of respondents said that their companies meet cost targets Often or Very Often.
That is not an impressive showing. We would not accept 17% as a pass completion percentage from a NFL quarterback. That’s not even a good batting average in baseball. So why do we put up with this in our companies? It’s also interesting that almost the same percentage of respondents (15%) don’t know enough about product profitability to even guess how well their companies are doing.
Companies are understandably careful with releasing actual product profit numbers. Still, it would be great to have a more in-depth academic study done, in which actual financials were analyzed to answer the same question.
How often does your company meet its product cost targets? Does anyone know in your company know? These are questions you cannot afford not to ask. Is your firm the 17%… or the 83%. If you are in the 83%, consider starting or improving your efforts in Product Cost Management.