The New Profit Model: The Profit Zone
Getting your staff to care about critical profit building
activities in your company is what the Profit Zone concept is all
about. Think about specific activities in your company that help
you make a profit. Of course there are the sales. And there is generating
cash flow. And there is the pricing of your products or services.
Would it surprise you if I told you there are 9 activities in any
company that help you drive profitability?
Think of your Profit Zone as a relentless, precise,
and intense staff mindset to make and keep money for your company.
How strong or weak your Profit Zone is will determine the health
of your organization. If you allow your company to under perform
in too many of these 9 profit zone activities, your company could
go out of business.
The 9 activities that drive and maintain profit in
your company consist of:
#1: Revenue generation: It doesn't necessarily
follow that just because you drive a lot of revenue to your company
that you will make money. However, you have to make money in order
to have money to worry about. So our first activity in the Profit
Zone is generating revenue. There are only 3 ways to increase revenue
in your company:
- Increase the number of customers.
- Increase the number of transactions.
- Increase the amount of the transaction.
Not all companies understand this concept. If you
don't have a way of attacking each of these drivers of revenue,
you won't be able to truly impact your profit as much as you could.
#2: Understand the strategic and tactical focus
of the company. This is the biggest challenge for companies
with 1 - 19 employees, but is still a challenge for everyone else.
Everyone talks about creating a 'strategic plan' for your company.
While that is important, without the focus to execute your plan,
profits will remain allusive.
As a part of the Profit Zone, this is probably an
area most CEOs are the least confident about. Anyone can come up
with a plan - the challenge is to make it happen. If CEOs were as
good at delivering on their plan as they are creating it, more companies
would be in business today.
#3: Gross and Net Profit Margins: Does your staff understand the difference between how your company Makes
Money and how your company Keeps Money? Are your financials set
up to track revenue groups - your service or product offerings so
you can determine where you make the most money?
Do you know what your Cost of Goods are for your services and products?
Cost of Goods is defined as Direct Labor, Direct Material and Allocated
overhead. If you aren't tracking your COG against your revenue groups
this aspect of your Profit Zone is leaking money. Most Profit and
Loss sheets are not set up this way and in fact, most accounting
programs aren't supportive of this type of bookkeeping.
I tell my clients to never rely on a software program to determine how
you want to track your money. Set up excel spreadsheets if necessary
and make sure you know where you make the best margins. It's a basic
fact: if you understand what services or products make you the most
money, you can make better decisions on how to spend your limited
resources. Get this nailed as quickly as possible. Know where you
make the best money and work on making those margins even better.
#4: Cash Flow: This is the relationship between when money comes
in and when it goes out. It's a snapshot in time and I make sure
my clients are tracking it daily or weekly, depending upon how long
they have been in business and how sophisticated their accounting
At the most basic level, Cash is King. Never doubt that and never lose
sight of the fact that many companies have gone out of business
with a strong revenue stream. Cash flow becomes extremely important
as a Profit Zone activity when you can engage managers in understanding
the flow of cash. They may see a great deal on a piece of office
equipment - you may be able to 'afford' that equipment but you don't
have the cash on hand to purchase it. Making sure your key employees
understand the importance of cash flow and how it differs from 'income'
is a huge step in educating and engaging your staff in the management
of your company.
#5: Cost Structure: Earlier I talked about Gross and Net Profit
and the value of tracking your revenue groups with their cost of
goods. Cost of goods helps you calculate how to make money. The
cost structure of your company helps you know where you can keep
The question is: what does it cost you to run your business? When I talk
about the Profit Zone, my goal is to provide you with information
that can help you educate and engage the rest of your staff in how
you run your business. Most employees believe that their bosses
make millions of dollars and assume they also walk away with all
the profits in their pockets.
Once your staff begins to understand what it takes to 'run' a business
- where the money goes that comes in - their assumptions begin to
get into alignment with what you already know. There isn't a lot
of profit, the little there is is hard to get and keeping it is
even harder. So explaining and sharing with your staff your company's
budget - educating them on what a Profit and Loss statement looks
like, why a balance sheet is important and what things cost is a
huge step in the right direction for any company looking to capture
#6: Customer Satisfaction: We all have examples of being the recipient
of poor customer service. I'm convinced that if the people I have
run into simply understood the role they played in impacting their
company's bottom line, they would step up and deliver steller customer
service, all the time! If there is any employee in your company
who can't make the connection to 'what their job is' and 'how it
impacts' our company's bottom line, you are fighting an uphill battle.
And don't mistake this simple fact: Exceptional Customer Service
starts with Exceptional Employees. You need your staff to understand
that it's their job to take care of the customer - it's your job
as the leader to take care of your employees.
# 7: Staff Voltage: When I refer to Staff Voltage, I'm talking
about the energy in the work place that reflects the level of enthusiasm
and the intensity of focus as expressed by the people working in
that company. You can literally feel it when it's high and you sense
it when it's low. Think about your company yesterday. When you walked
in, what did it feel like? Was there a sense of purpose? Were people
interacting or intensely focused on their work? Did you hear laughter?
Don't kid yourself that 'you just need people to do their jobs'
and you can run a successful company. You need people engaged -
you need your staff to care - and you as the leader need to be responsible
for Staff Voltage in order to maximize your profit potential.
#8: Product/Service Quality: This aspect of a company's Profit
Zone goes beyond the obvious: poor quality or service doesn't sell.
The Quality of your product or service can leverage
your margins - if you are able to communicate to your customers
why your quality is so critical to their business, you are creating
a 'value belief' in your customers mind - linking you to them because
of how you can impact your customers' success is critical. This
can help you increase your price. So don't stop at just telling
your customers that your 'quality' exceeds industry standards or
you are a 'Total Quality Management' shop. Go on to tell them why
that makes a difference to them and even more so to your customer's
#9: Company Innovation: This aspect of the
Profit Zone goes beyond Product Design or Service Delivery. This
is more about ideas that help you to process orders quicker, create
customer reports faster, save money on honing an internal procedure
- company innovation is a global mindset in your company that is
consistently improving how you do business. The impact of having
your employees, who are the key components of all those processes
and procedures energized to continually improve upon the little
things, is a huge driver of profitability for any company.
When every staff member knows how their job directly
relates to the Profit Zone, you are that much closer to creating
a company that will outperform competitors, excel in customer service
and bring more profit to your bottom line.