The Hidden Profit Centre in Your Business

Think HR has no bearing on profitability? Think again…

Having long been denounced as nothing more than a cost centre and a necessary part of doing business, the people management aspects of an organization (specifically HR) have been overlooked as an integral component of the profit structure of an organization. The link, however, is a lot stronger than many businesses have traditionally thought.

In a recent study on management practices in Fortune 1000 companies, the Center for Effective Organizations at the University of Southern California found that employee involvement measures (that traditionally sit well beneath the HR umbrella) show a solid ROI and link to the bottom line.

For small to medium-sized businesses who don’t even have an HR department, the impact of this study is even larger, as decisions made at owner-run businesses see an immediate trickle-down effect due to the smaller work structures, and can see a positive impact in the bottom linke much sooner than a larger organization. The key is in increasing the employee commitment to the organization.

Any one of the following measures can be implemented by a company to see a lasting improvement in financial returns (not to mention the cost-savings garnered from reduced turnover):

  • Employees generally feel that if an investment is made in them, they will return that investment in-kind. Establish a feeling of “repricosity” through:
    • Information-sharing
    • Skills training
    • Encouragement of ownership thinking
    • Fostering “buy-in” for organizational change measures
    • De-centralizing decision-making
  • Using technology for process improvement, not just cost-cutting benefits. If employees are brought into the process on the ground level, working backwards and can have input into process design, hey are more willing to manage change, and feel a greater benefit of new technology as a tool for them—not just because it’s cheaper for the organization
  • Building a culture which values job-security – which means attaching value to the person over the employee number.

Each of these measures is fiscally achievable in one way or another, even for very small businesses and engage in the employee’s higher level needs, which leads to increased productivity, better customer interactions, a willingness to tackle challenges and stick with the company–all which have a positive impact on profit.

Small tweaks can often have the greatest impact on profitabilty, particularly if they are seemingly unrelated to the bottom-line. Remember that everything in your organization starts and ends with culture, so before you tweak your marketing, sales prices, or slash costs to boost productivity, have a critical look at how investments to your people-practices can pay you back in spades.

How to Earn Your Turns in Business

Mountain-biking for the sole thrill of coasting down big hills with no effort doesn’t give you the technical skills or fitness you need to succeed in the long-run. It’s the same for business – watch to learn how to ensure your successes are long-lasting and not the short-lived, flash-in-the-pan variety all too common in business today.

3 Immediate Strategies to Boost Profits

If you are not profitable, your business has a death date. At the very least it is a long trudging journey of survival as you go day to day hoping to have enough money in the bank to pay your bills. That is no way to live, and I’m sure it’s not why you started your business.

It’s time to make healthy profits non-negotiable! Here are three strategies you can implement immediately to boost profits:

  1. Raise your prices – and if you’re like most business owners, your mind is already throwing up the objections “we won’t be competitive,” “Our customers are price-sensitive,” “We’ll lose our customers, ” and the list goes on. Before you spend too much time buying into your sabotaging beliefs, consider the actual impact of pricing through this example:

If your Gross Margin is currently 30% and you discount prices by 10% to win business, you need to make 50% more in sales to still make the same amount of profit. Versus if you raise your prices by 10%, your sales can decrease by 25% and you will still make the same amount.

And which customers do you think you might lose when you increase your prices? Yes, the pain-in-the-ass customers. And in our experience, most of the time minimal loss in incurred. What you really end up with is more profit.

As a small business, you want to be premium and expensive. And be sure your product or service matches your price point through quality and differentiation. If you are the same or worse than your competition, then forget about pricing, work on making your offering better first.

  1. Build a profit-first budget. What this means is you develop a conservative business model that sets you up for success in being profitable. Most people plow ahead with rose coloured glasses and ‘hope it will all work ‘ That is not a good strategy.

Here are your four steps to creating a profit-first budget.

  1. Make a conservative forecast for your sales for the next 12 months
  2. Decide what level of profits you want. (i.e. 15%)
  3. Build in your Gross Margin. You should know this. Make it conservative
  4. Make your overhead fit in the amount left over.

E.G. Sales of $1,000,000, profit of 15%, Gross Margin of 30% = Overhead allowance of $150,000.

This methodology will make you take a hard look at expenses. Click here to view a short video that dives a bit deeper into this point

  1. Negotiate – all business arrangements should be set up with the intention of win/win. That doesn’t mean you should take the first price someone gives you. There are always ways to find a better deal. Perhaps negotiating payment terms or buying in larger Or of course shopping around.

The underlying principle behind boosting profits and making this strategy work is your own negotiating skills. Most people are inherently bad negotiators. It invokes fear in people to ask for a better deal. To help you with this read “Never Split The Difference” by Chris Voss. It’s a game changer.