Ken Keller: Deeper into the profit zone
Profits are much more than increasing revenue and keeping costs down. There are 10 elements in your profit zone and last month, I covered the first five: employee engagement; the three levers of revenue; having a strategic and tactical focus; gross and net profit margin education of employees; and, understanding cash flow.
This month,
I will address your business cost structure, customer satisfaction, staff voltage; quality; and, innovation.
First, good leaders know that they must focus on reducing their cost of goods sold (or cost of sales if a service company) as a first step in improving profits. Knowing what this number consists of should help any CEO how to improve because this number shows what it actually costs the company to do business.
Once the staff knows what it costs to make the product or deliver the service, they can help improve how the business functions.
Unfortunately, most CEOs focus on overhead, or fixed costs. If they spent more time on reducing their costs of production or service, they are likely to see an immediate improvement of profits and cash flow.
Second, the message that excellent service equals excellent profits is lost on too many CEOs. How do you provide excellent service? It starts by hiring and retaining exceptional employees.
Do these great employees cost more money? Yes, they do, but keep in mind that one “A” level employee can do the work of up to three employees who really don’t want to be doing the job they are being paid to do.
Third, staff voltage is the energy in the workplace that reflects the enthusiasm and the intensity of the focus expressed by the people working in your company. As a customer, you can feel the vibe in a business when people are energized. And, you can also feel it when there is no energy. Where would you rather work? Where would you rather be a customer?
Next, quality counts. Higher quality can be leveraged to provide higher margins. Take the cup of coffee you purchase at Starbucks versus one at a coffee shop. The Starbucks coffee is fresh, made of premium beans and you pay more for it. The cup served at the coffee shop is more likely made of lesser quality beans and who knows how long it has been sitting on the warmer. The cost of goods between the two cups cannot be more than a dime, yet Starbucks charges substantially more for their offering, and that is reflected in their profits.
Finally, innovation should be a global mindset within your company to constantly be improving how the company does business. The better companies encourage their employees to constantly offer suggestions to improve processes to serve the customer better.
At far too many companies, all the ideas come from the top, because no one can have a better idea than the person who signs the front of the paycheck. Sadly, I used to work at places like this.
Now I advise CEOs how to get their employees more engaged and to help innovate and refresh the companies they lead. I teach them how to use the tools of The Profit Zone.
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:Ken. Keller@strategicadvisoryboards.com. Keller’s column reflects his own views and not necessarily those of the SCVBJ.
Keep in mind that one “A” level employee can do the work of up to three employees who really don’t want to be doing the job they are being paid to do.