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PMP Case Study

Financial services company repositions its sales strategy to target profits instead of revenues

The Situation

LeaseFin was experiencing top-level profitability declines over the last few years. The margin erosion was not common to the industry as a whole - some competitors were doing particularly well. There was no doubt that there were operational issues at LeaseFin contributing to margin declines, but there was also anecdotal evidence that LeaseFin was "bottom-feeding", acquiring customers at low prices. Business was being written by salespeople for the sake of increasing revenues regardless of the contribution to the corporate bottom-line.

The Approach

Confida embarked on a comprehensive fact-finding and analysis mission in order to identify the root-causes of the margin erosion within the company. Since we knew that other industry players were not suffering the same margin erosion and since there was no targeted sales strategy at LeaseFin, we suspected that particular pockets within the company might be doing well while others might be underperforming. We use a three-phased approach. The first phase was the design of a financial model to helps us understand the business. Secondly, we wanted to design a flexible activity-based-costing algorithm which would allow us to understand the profitability of any segment of the business. And thirdly, we aimed to provide LeaseFin with a tool that could provide them answers regarding the profitability on an ongoing basis.

The Solution

Confida provided LeaseFin with an web-based analytic application that provided a microscopic view into the profitability structure of their entire business. Our solution was based on an elegant activity-based costing model that assigned costs and revenues for each primary customer-facing activity that LeaseFin conducted. The smallest denominator of business activity was the lease and our solution assigned all revenues and costs to each individual lease. Leases could then be appropriately aggregated to form a portfolio for a salesperson, a branch, a product line, an industry grouping or any combination that the user could imagine. Using the new system, salespersons could view the profitability of their own portfolio. Furthermore, the system allowed them to perform scenario planning to understand the impact of potential new business on the profitability of their portfolios. Coupled with minimum return targets mandated from the CEOs office, this decision-making tool helped empower salespersons to actively manage their own portfolios by pricing products more profitably and targeting the acquisition of "better" customers.