01 — Programme Outcome Map & Business Diagnostic
1. What you will learn
This lesson turns the whole subject of pricing and margin into three specific outcomes for your own business over the next ninety days, and gives you a diagnostic to decide which three. You will learn how to read your own numbers for the symptom that matters most, how to write an outcome that can actually be tested, and why choosing three rather than ten is the single most useful constraint available to an owner short of time and cash.
2. The idea explained
Margin problems announce themselves in a small number of ways, and each points to a different remedy. Learning to read the symptom saves months.
The first symptom is a low contribution margin across the board. Every line earns thin. This usually means prices have drifted while costs rose, or that the business competes only on price. The remedy is pricing work: repositioning, segmenting, or raising prices on the lines the market will bear.
The second is wide variation between lines. Some lines earn well and others barely at all. This is a mix problem, and the remedy is usually not pricing at all but deciding what to push, what to reprice and what to stop.
The third is a healthy margin on paper with no cash in hand. This is a realisation and working-capital problem: discounts, returns, credit given too freely, or stock sitting too long. Repricing does nothing for it.
The fourth is adequate margin and adequate cash, but too little volume to cover fixed costs. That is a demand problem wearing a margin costume, and it belongs to the marketing and sales modules rather than this one.
The diagnostic is therefore: calculate margin by line, calculate collection speed, and compare total contribution against fixed cost. Whichever of the four patterns you see decides where your three outcomes should sit.
Now the outcomes themselves. A usable outcome has five parts: a baseline, a target, a deadline, an owner and a review date. Grow sales is not an outcome. Raise realised margin on the service line from thirty-one per cent to thirty-five per cent by the end of the quarter, owned by me, reviewed on the first Monday of each month, is an outcome.
Three is the right number because you are likely working alone or with very few people. A fourth outcome does not add a fourth result; it usually subtracts from the first three.
Be clear-eyed about what follows. Setting good outcomes improves your odds; it does not make them certain. Many businesses do the diagnostic properly, act sensibly, and still find conditions move against them. The diagnostic earns its keep by making sure you are at least working on the right problem.
Apply it
3. How to apply it in your own business
Take your baseline sheet. Calculate contribution margin for each of your main lines and rank them.
Then calculate your average collection period: take your outstanding receivables and divide by your average daily credit sales. If you sell entirely for cash, skip this and check your stock instead, by dividing stock value by average daily direct cost.
Then compare total monthly contribution against total monthly fixed cost. Note the surplus or the shortfall.
Read which of the four patterns fits. Write three outcomes addressing it, each with the five parts. Put the review dates in your calendar immediately, because an outcome without a scheduled review quietly disappears.
Where an outcome involves changing contract terms, credit periods or invoicing practice, have the commercial logic clear first and then take qualified professional advice on the documentation.
Worked example
4. Worked example
A commercial printer runs three lines. Bulk brochure printing brings four hundred thousand rupees a month at a direct cost of three hundred and twenty thousand, so contribution is eighty thousand rupees, a margin of twenty per cent. Small-format jobs bring one hundred and twenty thousand at a direct cost of sixty-six thousand, so contribution is fifty-four thousand, a margin of forty-five per cent. Design services bring sixty thousand at a direct cost of eighteen thousand, so contribution is forty-two thousand, a margin of seventy per cent.
Total revenue is five hundred and eighty thousand rupees and total contribution is eighty plus fifty-four plus forty-two, which is one hundred and seventy-six thousand rupees. Overall margin is one hundred and seventy-six thousand divided by five hundred and eighty thousand, which is about thirty and a third per cent.
His fixed costs are one hundred and sixty thousand rupees, so his surplus is sixteen thousand rupees a month.
Now the diagnostic. The spread between his best line at seventy per cent and his worst at twenty per cent is fifty percentage points, which is very wide. Bulk brochures account for about sixty-nine per cent of his revenue and only about forty-five per cent of his contribution. This is clearly a mix problem, not a general pricing problem.
Notice also the leverage. If he could shift just forty thousand rupees of monthly revenue from bulk brochures to design services, he would lose forty thousand times twenty per cent, which is eight thousand rupees of contribution, and gain forty thousand times seventy per cent, which is twenty-eight thousand. The net gain would be twenty thousand rupees a month, on unchanged total revenue. Against a current surplus of sixteen thousand, that is a large difference, and it required no price increase at all.
His three outcomes therefore address mix: raise design revenue from sixty thousand to one hundred thousand a month within ninety days; hold bulk brochure prices rather than discounting further; and introduce a minimum margin of twenty-five per cent on new bulk quotations.
5. Common mistakes and how to fix them
Diagnosing before measuring. Do the line-by-line margin calculation first; intuition about which lines are profitable is wrong surprisingly often.
Writing outcomes without baselines. Every outcome needs a starting number, or you will never be able to say whether it moved.
Setting more than three outcomes. Cut to three. The fourth reliably weakens the others.
Treating a cash problem as a pricing problem. If margin is healthy and cash is short, look at collection, returns and stock before touching prices.
Leaving review dates out of the calendar. Put them in the moment the outcome is written.
Key takeaways
6. Board summary
Margin problems come in four patterns: thin across the board, wide variation by line, poor realisation, or insufficient volume. Diagnose by calculating margin per line, collection speed and total contribution against fixed cost. A usable outcome has a baseline, a target, a deadline, an owner and a scheduled review date. Choose exactly three outcomes, because a fourth subtracts from the first three rather than adding. Shifting revenue mix towards high-margin lines can raise profit without any price increase at all.
Check your understanding
7. Practice and self-check
Question one. What are the four patterns a margin problem can take? Answer. Thin margin across all lines, wide variation between lines, healthy margin with poor cash realisation, and adequate margin with insufficient volume.
Question two. Which pattern is not solved by repricing? Answer. The realisation and working-capital pattern, where the remedy lies in collection, returns and stock rather than price.
Question three. What five parts must an outcome contain? Answer. A baseline, a target, a deadline, an owner and a review date.
Question four. In the printer example, what was total contribution? Answer. One hundred and seventy-six thousand rupees, being eighty plus fifty-four plus forty-two thousand.
Question five. What was his overall contribution margin? Answer. About thirty and a third per cent, being one hundred and seventy-six thousand on five hundred and eighty thousand of revenue.
Question six. What would shifting forty thousand rupees of revenue from brochures to design gain him? Answer. A net twenty thousand rupees a month, losing eight thousand at twenty per cent and gaining twenty-eight thousand at seventy per cent.
Question seven. Why is that figure significant for him? Answer. Because his current monthly surplus is only sixteen thousand rupees, so the shift would more than double it.
Question eight. Why should outcomes be limited to three? Answer. Because an owner working alone or with very few people has limited attention, and a fourth outcome typically weakens the first three.