Ken Keller: What’s behind your missing profits?

Santa Clarita Valley Business Journal

If the employees in your company understand the value they bring to the business, they’ll be more engaged. If any employee is engaged, they are more productive. A company filled with productive employees will make more money.

This column is not about sharing your financials. It is about why your company is nowhere near as profitable as it could be, and what you can do about what I call your missing profits.

Revenue generation

There are only three ways to improve or grow top-line revenue. The first is to increase the number of customers. The second is to increase the number of transactions and the third is to increase the transaction amount.

The best-led companies have goals, strategies and tactical programs to address each of these drivers simultaneously. It’s easy to fall into the trap of chasing new customers but failing to take action on all three drivers will hinder revenue growth.

Execution: strategic and tactical focus

Having goals, strategies and plans are wonderful, but unless the action plans are focused on what needs to happen daily, not much will change. The best-run companies execute and adjust as needed; poorly run companies fail to get things done and wonder why nothing changes.

When creating strategies, it is important to take into account the company’s track record of successful execution. In business, execution is reality and failure to take action exposes what is truly happening, or not happening in the company. My belief is that people who can’t or won’t execute need to go to work for your competition.

Gross and net profit margins

This is all about how a company creates and keeps money. A good gross profit margin means that the company delivers its products and services in a disciplined manner. Having solid net-profit margins means the company is holding down the never ending urge to increase overhead.

Tracking and forecasting margins means that the management team isn’t always looking in the rear view mirror to address the issues of today and tomorrow.

Cash flow

Simply put, this is the relationship between when money comes in and when it goes out. Cash is king and something that needs to be tracked regularly. Never forget that many companies have gone out of business with a strong revenue stream.

Cost structure

Knowing your cost of goods helps you calculate how to make money. Understanding the cost structure of your company, both direct and overhead expenses, helps you know where you can keep your money and not spend it. How? It helps you to know what it costs to run your business.

The better run companies educate their employees on how they impact costs. It’s also helpful to teach your staff about how volume, price and cost can impact costs, both from a buying and selling perspective. All this leads to having employees comprehend and align to the fact that making a profit in business is a challenge.

Customer satisfaction

Having exceptional service starts with having exceptional employees. As the leader, it is your responsibility to help your employees connect the dots between what they need to do to provide excellent service to creating excellent profits. I believe in the concept of “Servant Leadership,” and will state that it is your job, your responsibility, to take care of your employees so they may take care of your customers.

Staff voltage: engagement and energy

You can feel it whenever you visit a place of business: the energy level of those that work there. The voltage reflects not just the energy but the enthusiasm of those on the payroll.

There is a direct correlation between engaged employees that care about your customers and those employees who are just putting in the time.

Product and service quality

The quality of what you sell can leverage your margins in a positive way. You want to be known in the customer’s mind as someone who provides value over and above the price, because what you deliver impacts your customer’s success. Also, high quality and value supports your ability to take price increases.

Company innovation

This isn’t so much about creating new or new and improved products as it is about simply finding ways to improve how you do business. Innovation can come into play by reducing the sales cycle; reducing order processing and delivery times, improving how your employees communicate with your customers. Innovations may cost very little to create or implement but can pay tremendous dividends in customer loyalty.

As the leader of your company, it is your duty to raise awareness that the ability to impact the bottom line is the responsibility of each and every employee you have on the payroll.

Ken Keller is an executive coach who works with small and midsize B2B company owners, CEOs and entrepreneurs. He facilitates formal top executive peer groups for business expansion, including revenue growth, improved internal efficiencies and greater profitability. Email:[email protected]. Keller’s column reflects his own views and not necessarily those of the SCVBJ.

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