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:

  1. Increase the number of customers.
  2. Increase the number of transactions.
  3. 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 software is.

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 money.

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 more profit.

#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 customer.

#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.

 

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