Service profitability: for pricing strategies, cross-service discounting and optimization

What is service profitability? With the financial industry facing economic turmoil, a squeeze on margins and a wave of new regulatory policies, there are many companies facing an urgent need for change to improve their profitability. There are also firms benefiting from the new era with a significant growth in business, prompting decisions about how to grow their range of services to achieve the highest profitability. Any decisions taken in the process of change or growth are best made where there is clear visibility of the effects of the proposed new model. Knowledge and visibility of the profitability of a service are essential inputs for increasing the probability of a successful decision as part of a change or investment for growth. The profitability of a service is the balance of income received for the receipt of that service minus the costs to provide that service to the client. This relationship between income and costs can be used to drive pricing strategies, relationships or discount pricing and is a valuable starting point for reviewing any changes in sourcing. For the purposes of this study, a service can be interpreted as the processes related to providing an offering of a particular product. For example, the service provided to clients which allows them to invest in hedge fund products would include the full end-toend business processes needed. These involve researching the hedge fund providers, maintaining the product listing, selling the position to the client, supporting the client during the investment lifetime and closing out any client investment in a hedge fund. All companies have a form of pricing strategy, but in reality there are many variances from their rate cards or “expected” levels of income and the “actual” received income. This variance can be described as revenue leakage.