Starting a business can be quite a challenging endeavor, especially if you lack complete knowledge about the product or its details. It is important to remember that a product is essentially a new development brought to the market by a product company to solve customers' problems. When starting a product company, it is crucial to make informed decisions about various aspects such as what product to make, the cost and price of the product, and how to manage employee expenses.
It is important to note that a product company itself does not sell the product but sells it through distributors, retailers, and e-commerce sites like Amazon and Flipkart. In such cases, the company needs to make decisions about the margin of distributors and retailers to ensure that it makes a profit and does not lose them. Pricing the product correctly is also crucial to earning a profit and cannot be done randomly based on competitor prices.
Profitability is the backbone of any business, and without knowing if a business is profitable, it cannot be sustained or grown. To help run a successful business, the one-third framework can be used, which entails dividing a company's revenue into three parts: one-third for operating costs, one-third for reinvestment, and one-third for profit. This framework can help ensure that a business is running sustainably while also allowing for growth and profitability.
What is the One-Third Framework, and how can it help us create a more sustainable future?
One-Third Frameworkbapproach is widely used in the business world as a way to divide a company's revenue into three equal parts, each of which serves a specific purpose.
The first one-third of the revenue is typically allocated towards product development costs. This includes all expenses that are directly related to creating and manufacturing the product, such as the cost of raw materials, labor, packaging, and shipping. By dedicating a significant portion of the revenue to product development, companies can ensure that they are creating high-quality products that meet the needs of their customers.
The second one-third of the revenue is usually reserved for business operations costs. This includes all expenses that are necessary to keep the company running smoothly, such as salaries, rent, utilities, marketing, and advertising. Additionally, this portion of the revenue may also be used to pay the margins of distributors and retailers who help to sell the company's products.
The final one-third of the revenue represents the profit that the company earns before taxes are deducted. This is a critical aspect of the One-Third Framework, as it allows companies to allocate a significant portion of their revenue towards both product development and business operations, while still ensuring that they are generating a healthy profit.
Overall, the One-Third Framework is a helpful tool for businesses of all sizes and industries. By following this approach, companies can better manage their finances, create high-quality products, and ensure the long-term success of their business.
Which companies are leading the way in using the One-Third Framework to create a more equitable and sustainable world?
In this informative piece, we take a closer look at various companies that have successfully implemented the one-third framework in their operations. By breaking down their revenues, product costs, and business costs, we can see how these companies have managed to achieve profitability while maintaining a healthy balance between their expenses and income.
Bajaj : Let's start with Bajaj Consumer Care, a well-known brand in the personal care industry. According to their financial records, their total revenue for the year was Rs. 935 crores. Out of this amount, their product cost amounted to Rs. 237 crores, which is 32% of their total revenue. Meanwhile, their business cost, which includes depreciation, rent, electricity, interest, marketing, distribution, and employee salaries, amounted to Rs. 355 crores, or 38% of their total revenue. When we add these two costs together, we get a total of 70% of their total revenue. This means that their profit before tax was Rs. 283 crores, or 30% of their total revenue.
Salesforce: Salesforce has a commitment to having one-third of its board of directors, executive leadership team, and global workforce be women by 2028. The company also has a supplier diversity program that aims to source 30% of its goods and services from minority-owned businesses, women-owned businesses, and/or LGBTQ+ owned businesses by 2026.
Intel: Intel has a commitment to having one-third of its board of directors and executive leadership team be women and people of color by 2030. The company also has a supplier diversity program that aims to source 30% of its goods and services from minority-owned businesses, women-owned businesses, and/or LGBTQ+ owned businesses by 2025.
Thyrocare: Moving on to Thyrocare, a leading provider of diagnostic and wellness services in India, their financial records show that their total revenue for the year was Rs. 403 crores. Their product cost amounted to Rs. 109 crores, which is 26.4% of their total revenue. On the other hand, their business cost amounted to Rs. 167 crores, or 40% of their total revenue. When we add these two costs together, we get a total of 66.4% of their total revenue, which is 2/3 of their total revenue. This means that their profit before tax was Rs. 138 crores, or 33.4% of their total revenue.
Procter & Gamble: Procter & Gamble has a commitment to having one-third of its board of directors, executive leadership team, and workforce be women and people of color by 2030. The company also has a supplier diversity program that aims to source at least $10 billion from minority-owned businesses, women-owned businesses, and/or LGBTQ+ owned businesses by 2030.
Naukri.com: we have Naukri.com, a popular job portal in India. According to their financial records, their total revenue for the year was Rs. 1271 crores. Their manpower cost, which includes salaries and benefits for their employees, amounted to Rs. 520 crores, or 40.9% of their total revenue. Meanwhile, their business cost amounted to Rs. 341 crores, or 26.8% of their total revenue. When we add these two costs together, we get a total of 67.7% of their total revenue. This means that their profit before tax was 32.3%.
It's worth noting that all of the companies listed above are public and have managed to achieve profitability by allocating approximately one-third of their revenue to their profit before tax. This serves as a great example for other businesses to follow. If you're struggling to allocate one-third of your revenue to your personal income, then it may be time to adjust or reduce your other expenses accordingly. For product companies, implementing the one-third framework can be achieved by ensuring that your product cost and business cost become 2/3, while your profit before tax becomes 1/3. By doing so, you can achieve profitability while maintaining a healthy balance between your expenses and income.
One-Third Framework: A Golden Ratio for a Brighter Future?
The One-Third framework offers several advantages for businesses seeking to optimize their profitability and maintain a consistent cash reserve. One of the most significant benefits is the clear benchmark that it provides, which allows owners and managers to align their efforts towards a shared goal. This shared focus helps ensure that everyone is working towards the same objective, which can increase efficiency and productivity.
Another advantage of the One-Third framework is that it prioritizes profitability, providing businesses with a reliable way to earn profits. With a focus on profitability, businesses can feel more confident in their ability to generate income and maintain positive cash flow. This consistency in revenue can help build a positive cash reserve, which can be essential for weathering unexpected expenses or downturns in the market.
In addition, the One-Third framework provides businesses with a way to make informed decisions when deviating from the benchmark. By analyzing the numbers and percentages needed to adhere to the One-Third framework, businesses can make strategic decisions that prioritize either increasing revenue or optimizing costs. This can help them achieve a J-curve, where revenue growth outpaces expenses, resulting in greater profitability over time.
Overall, the One-Third framework offers businesses a structured and reliable way to achieve profitability and maintain a positive cash reserve. By providing clear benchmarks and a focus on profitability, businesses can feel more confident in their ability to succeed and make informed decisions when deviating from the framework.