Boosting Product Profitability

What is Product Profitability?

As global competition intensifies, not only from China but increasingly from Vietnam and other low-cost economies, many manufacturing companies are finding themselves caught in a price war just to hold onto market share. One of the most effective ways for companies to strengthen their overall competitiveness by optimising product profitability across their portfolio. This helps identify which products generate the most profit and which may be less profitable or even unprofitable. With these insights, companies can adjust their portfolio to improve EBIT and stay competitive. Product profitability means not just looking at how much it costs to make the product, but also considers the full economic burden the product places on the company. 

This includes:

1. Direct product costs: Raw materials, labour, manufacturing.

2. Design and development costs: Engineering, R&D, prototyping, testing — often significant in capital-intensive sectors.

3. Overhead allocation: The share of company-wide costs (like administration, sales, HR, IT) needed to support the product.

4. Lifecycle costs: Support, servicing, warranties, and end-of-life disposal/recycling.

So, true product profitability is calculated as follows:(Revenue from the product) – (All costs related to making, designing, supporting, and enabling the product through the company infrastructure).

Our Five Top Levers for Improving Product Profitability

H&Z has a proven framework that combines operational quick wins with structural transformation throughout the entire product lifecycle for sustainable EBIT improvement.

1. Measure True Profitability

The first step is to understand your current situation. Measuring product profitability may seem straightforward on paper, but in our experience doing it properly takes effort. It requires collecting data from across the organisation and agreement on shared definitions so that everyone is working from the same baseline.

Too often, gross margin alone hides costly complexity. One manufacturer discovered that its top-selling product line was actually among the least profitable once custom engineering, service costs, and warranty claims were factored in. Meanwhile, a lower-volume, modular product turned out to deliver significantly better margins. Only by understanding profitability on a product level across the whole product portfolio  can you identify any surprise performers.  

2. Commercial Cost-Out for Existing Products

Once you understand where value is created, and lost, across your product portfolio, the next lever is to target quick, commercial cost reductions. These are fast, high-impact savings that improve margins without touching the product with sourcing: renegotiating supplier contracts, consolidating spend, or exploring alternative suppliers can deliver immediate savings. In parallel, review SG&A operations (sales processes, marketing spend, administrative overhead) and identify inefficiencies or redundancies that can be one case, a capital equipment manufacturer ran a short sprint focused on just three product lines. By renegotiating parts contracts and simplifying sales support structures in key markets, they achieved margin improvement in under six months, all without altering a single product feature.

3. Design-to-Cost for New Products

While quick wins matter, lasting profitability comes from designing it in from day one. That’s where Design-to-Cost plays a vital role. Instead of designing a product first and then trying to cut costs later, teams set clear cost and margin targets early on and make design decisions that align with those goals. This means aligning around clear cost targets, and making trade-offs between features, materials, and complexity, always with a clear understanding of what the customer values and what they are willing to pay for.

4. Product Portfolio Optimisation

Not every product warrants the same level of investment. By leveraging product profitability data, we help companies assess both the financial performance and strategic value of each product line. This enables smarter resource allocation and decisions on whether to focus on high-performing products, redesign or retire underperformers. The result is a more competitive portfolio that strengthens your market position.

5. Innovation That Drives Margin

Focusing your portfolio creates space for purposeful innovation. When resources are no longer tied up maintaining legacy or low-margin products, teams can concentrate on developing new offerings with real market impact. The most successful companies link their innovation pipeline directly to financial outcomes and ensure that new products are not just technically impressive, but also aligned with what customers will pay for.

The H&Z Perspective: Addressing the Root Causes

Many companies focus on addressing the symptoms of profitability challenges, rather than tackling root causes. This often leads to short-term fixes that don’t drive sustainable change. 

At H&Z, we take a different approach. Our structured methodology and turnkey solutions go beyond quick wins to deliver lasting EBIT gains.

We have extensive expertise spanning all areas of business operations, with a deep background in industrial goods and implementing product profitability programmes. We bring a holistic, efficient approach to every project, ensuring that improvements are there for the long term.