Cash Cow
Candlefocus EditorA Cash Cow is a business or product that once paid for, produces a steady cash flow over its lifespan. Cash cows are typically part of mature, slow-growing industries, meaning that they have achieved a large chunk of the market share, and the return for investment is usually high. For example, a Cash Cow might be a product such as a razor blade. The cost of creating the blade is minimal, but is sold over and over at a consistent rate due to needing replacement regularly. The profit from this type of product means that the company can reinvest in more innovative products and/or marketing strategies, and also means that a company’s existing products remain up to date and increase the customer loyalty.
A Cash Cow is part of the four categories in the Boston Consulting Group Matrix. These are, increasing stars, cash cows, problem children, and dogs. The BCG Matrix helps companies to better understand the value of different business units within the corporation, and focuses on the cash flow and market share of each area. Other than Cash Cows, Dogs are the steady, slow-growing products, increasing stars are the products that require a large investment before seeing return, and problem children are the hybrid of both of these.
Cash cows can be a great tool for companies to take advantage of. They may help to solidify a market share, as well as boosting a companies financial security. As well as this, Cash Cows can help to fund the development and marketing of innovative products, which are more suitable for creating the return on investment the company originally wanted.
Overall, a Cash Cow can be a great tool for companies to take advantage of. It is important to remember however, that Cash Cows can become problematic if a company becomes too reliant on them, as too much of a good thing can lead to complacency and lack of ambition. As long as the Cash Cow is part of a diversified portfolio, it can create a strong financial foundation for companies to build on.