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5 Ways to Increase Profit This Year

5 Ways To Increase Profit This Year

By Robert Fish

Your company is growing, your team is adding clients and your net income is growing in terms of total dollars – but not in terms of net-income percentage. Companies that are growing and really focused on client acquisition usually see negative pressure on net-income percentage – much to the CEO’s frustration.

Get Busy

Here are some things you can do RIGHT NOW to grow revenue AND grow net-income percentage.6551520247_ae0315efb8_z

1. Look at your client mix. List all of your clients on a spreadsheet, then ask the following questions:

  • Which clients produce the most revenue? The most gross profit?
  • Which ones require the most management time? The most staff time?
  • Which ones have the most growth potential?
  • Which clients are absolute pleasures to work with? Which ones just drive you and your team nuts?

2. Look at your data objectively and figure out your Top 20% clients. This will help you create your “Top 20% client profile” -– the types of clients that you want more of.

3. Identify the decision makers at the Top 20% clients and begin to create a Buyer Persona. Think about: What are their habits? How do they buy? Where do they look for information? What groups do they belong to? What are their needs and their biggest problems to solve?

4. Focus your sales and marketing efforts on prospects that fit your Top 20% profile, and leverage their typical Buyer Persona into your sales process and messaging.

5. Stop lowering prices to get a deal and stop giving away margin!!! Your targeted group appreciates you and your firm and is willing to pay optimal profit for your products or services. You have already proven it with the spreadsheet you developed. This is also a great time to raise prices.

At the end of the day, without making any additional investment in operations, product delivery, etc., just by getting more focus on WHO you are selling to, you are automatically increasing the value of WHAT you are selling because this group VALUES what you are selling more than others who are willing to buy, but only at a discounted price.

Another net-income percentage benefit is that this targeted group is easier to service. Your core product or service is already exactly what they need. This saves huge amounts of time, but that does not show up easily on any of the P&L statement line items … just net income.

Ask The Question

Get your team together at your next Quarterly Planning session and ask the question:

“How can we get our net-income percentage from X% to Y% by the end of 2015?”

Don’t shoot for the moon. The objective is getting your team aligned around some key priorities and focused on execution. Results drive engagement.

(Image: 401calculator.org / Flickr)

Eliminate The Fear Of Focus

Businesses have natural growth curves just like people or animals or plants: When they’re new, growth is exponential, but within a short time it slows.2902351751_c30aacdaf8_o

Most small to medium-size companies start with very healthy growth. Systems and processes go on the back burner as the drive for new customers and new revenue streams heats up … but then revenue plateaus, seemingly for no reason.

There is usually an inflection point where the growth stops and complexity begins. It’s the nature of how companies start and grow, and it’s not a reflection on the founders or management. But it’s a major reason why there are so few U.S. companies that exceed $10 million in revenue.

The most common root cause for this plateau is that the company is trying to do to many things well, and operationally it’s spread so thin that mistakes happen, re-work is abundant and the once-common referrals stop coming in.

How To Break The Plateau

The answer to this problem is Market Focus. The management team must Crush the Fear of Focus with a Breakaway Move to return to Gazelle-like growth … 15% per year or more.

A Breakaway Move has 4 major components:

  1. Extreme Focus on the Core Customer’s persona.
  2. Extreme Focus on the market segment you want to own – a segment that you’ll be aggressive with a “play to win” (vs. a “plan not to lose”) mindset.
  3. Extreme Focus on solving your Core Customer’s NEEDS – not WANTS – within the market segment.
  4. Extreme Focus on operationally tuning the organization to deliver like crazy for this specific customer group.

Don’t stop doing all the work you are doing for existing clients and risk cash-flow problems. Instead, intentionally focus all of your sales and operational focus on a Breakaway Move that will result in more revenue, higher profit margins, more referrals and (best of all) happier employees.

Work with your team to discuss these 4 steps; you’ll begin to overcome the Fear of Focus once a real plan is in place. You’ll naturally start saying “no” to more things and “yes” to the opportunities that drive your economic engine.

(Image: Dimitris Kalogeropoylos / Flickr)

FUEL UP Your Growth Engine

General Electric’s GE90 class jet engine is powerful enough to power a Boeing 777 airplane in flight for over 5 hours … on just ONE engine. GE is relentless in its engineering efforts to continuously create more powerful, safe, fuel efficient and light engines. But as powerful as this engine is, it cannot produce any thrust without fuel. It won’t even start.

Every company has a growth engine. But, in reality, leaders rarely take the time to inspect and tune it up for maximum efficiency. In a business, fuel is CASH. And the number one way to increase cash is to increase PROFIT.

There are 7 Levers that influence your Profit and Cash Flow, the fuel required to rev up your growth engine to maximum thrust.

Lever #1 – PriceGE-90_Engine,_Unknown_JP337557

Lever #2 – Volume

Lever #3 – Cost of goods sold (COGS) and direct costs

Lever #4 – Operating expenses

Lever #5 – Accounts receivable

Lever #6 – Inventory or work in progress

Lever #7 – Accounts payable

It’s easier than you think to take actions on these levers and increase your Profit and Cash Flow. The Power of One is a concept that shows how doing something to move those levers either 1% (on levers 1-4) or 1 day (on levers 5-7) in a few critical areas can lead to a significant increase in Profit.

Move The Levers

The Power of One One-Page Tool allows you to calculate the effect on your profit if you can move those levers either 1% or 1 day.

Lever #1 – Price: What’s the value of increasing prices by just 1%?

Lever #2 – Volume: What’s the value of selling just 1% more units at the same price?

Lever #3 – COGS: What’s the value of decreasing raw material and direct labor costs by just 1%?

Lever #4 – Operations: What’s the value of reducing overhead by just 1%?

Lever #5 – Accounts receivable: What’s the value of collecting from debtors just 1 day sooner?

Lever #6 – Inventory: What’s the value of keeping 1 day’s less stock/inventory on hand?

Lever #7 – Accounts payable: What’s the value of paying creditors 1 day slower?

I know what you are thinking. You already know all of this!

But the reality is, most companies don’t take the time to actually measure the impact these small changes can make. You can easily add 3% to your bottom line just by tuning your engine, making small and painless adjustments.

Put the Power of One into action with a simple spreadsheet that you and your team can use to measure the impact of the changes in each Lever. Assign a person to each lever, and create SMART goals and action plans to generate more profit to FUEL UP Your Growth Engine!

(Image: Dale Coleman / Wikimedia Commons)