What is the Goal of Your Business?

By Mark Faust@EchelonManagement.com

“The goal of this business is to make money, of course!” responded the owner.

Then we asked a few more questions.

How do you involve your team in efforts to improve profitability or has this mostly been the job of management?

• Besides yourself, who else is given incentives to improve profitability?

• How aware are your people as to what areas most affect profitability, such as pricing concessions, controllable expenses etc.? Are you able to prioritize, quantify and communicate to the team to what extent the top areas of profit drain are within your business?

• What types of business, customers, products, services etc. yield you the greatest profitability? Is your sales team aware of these and are there incentives for them to sell profitably? Are you coaching them to effectively – helping to move more business toward the more profitable areas?

• What we find with our clients is that tremendous increases in profit can occur by implementing a process around improving profits. Here are a few strategies that can help to create results around increasing profits.

It helps if you can determine incremental awards or incentives around ideas that improve profits. We’ve seen rewards given as a percentage of money saved and thus tens of thousands of dollars with a potential cap as well as simple small cash or gift card awards for any and every idea that has an impact on profitability. Determine an incentive program that you can live with and deliver upon regardless of how voluminous the profit improving ideas may become. Back up monetary rewards with genuine praise and gratitude; this can be in written or formal spoken expression.

Not that selling your most profitable products and services is always the highest priority, but it helps to show your team the rankings of how your products and services stack up in regards to profits. It also helps to show as many areas of costs that may have any potential for improvement. Don’t limit these areas to just the immediate areas of responsibility of the employee, but rather allow their creativity and awareness of what is happening on the front lines of your business help to innovate completely new solutions or incremental savings no matter how small.

Encourage even the smallest of savings. Even if just 15 employees came up with 15 ideas that each increased profitability by an average of just .05%, that could in some cases work to double the profitability of a company.

Often the greatest drains in profitability occur in the selling process. Sales people often are unaware that even just a one percent price concession is frequently well over a 10% reduction in profitability. Training your team to sell on value and to negotiate options and the estimates of what your solutions stand to deliver are just a couple of ways of inoculating your team from profit draining price concessions.

There are the Eight Essential Areas of Objectives in the strategic planning process (for a free Strategy Handbook email us) and while Profitability Objectives are of the lowest priority according to Peter Drucker it is still always essential to have specific profitability objectives. Like all objectives they must be measurable on a regular basis, preferably at least monthly. There needs to be clear accountabilities and at least quarterly points at which progress will be measured and discussed.

Involve your whole team in setting and executing upon the objective of improving profitability and you will get far more accomplished than doing it alone.