Where to Improve Profit$

The Santa Clarita Valley Business Journal

Sales & revenue

Segregate all clients into A, B or C categories, taking into account volume, ease in dealing with including time and energy and future business potential.

To the extent possible, do a full profit and loss on each client, at a minimum to gross profit line on the profit and loss.

Take this analysis one step further and do a profit and loss on each product for each client.

Be crystal clear about who the ideal client is for your company and weed out prospects that do not fit the model before investing resources in the wrong relationship.

Establish a profit and loss model for prospects to be “plugged-in” going forward.

Assign an account executive to each client and establish an appropriate call cycle (monthly, bi-monthly, quarterly).

Conduct an annual business review presentation for top clients.

Schedule price increases in advance, notifying clients of price changes and detail the rationale; put in writing and review in person or on the phone.

Set revenue goals for each client and review quarterly.

Gross profit

Dissect what the cost of goods is for your company.

Assign individual ownership of each line in your cost of sales or cost of goods sold.

Set budgets monthly by line item and work to improve / reduce costs by one percent a month through negotiation with vendors or through process improvements.

Do not be afraid to ask for cost reductions or for opportunities for volume discounts.

Asking new suppliers to bid on your business is a good way to check to see if current suppliers are being fair.

Remember, what gets measured gets done.

Fixed overhead   

Measure each item on the profit and loss in the overhead section of the profit and loss as a percentage of sales for the last two years.

Expect some cost increases due to inflation but beyond that, significant increases need to be reviewed to see if there are less expensive alternatives to providing the same or better quality to clients.

Many managers believe that the best answer to addressing the challenges of growth is to hire more people — avoid the temptation and pay overtime/+* instead of adding people to the payroll — it’s a lot cheaper.

Net profit  

Set profit goals and review monthly, taking into consideration the variance in days of the month.

Use the information from RMA (Robert Morris and Associates) to compare against the competition.

Use the measures of revenue per employee; gross profit per employee and net profit per employee to ensure that productivity remains high.

CEO focus  

Your attitude should be one of: “If we watch the pennies, the dollars will take care of themselves,” then lead by example.

Share the attitude of “If we still need it (whatever ‘it’ is), we’ll buy it next week” to avoid splurge spending.

Everything you do is visible; every word you say is heard and you are always under the microscope so choose your actions and your words very carefully.

If you want your employees to contribute to making the company more profitable, you have to teach them how the company makes money — this is not the same as the employees believing that when a check shows up from a client that all the money belongs to you.

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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