As with everything business owners and executives face, profit is not so simple in real life. There are many factors and decisions you make along with way that impact the firm’s profit.
Over the years, Trivers Consulting Group has advised companies large and small about how they can increase profit. There are ten critically important actions that enable a company to not only increase revenue but to increase profit as well.
I’ve never seen owners more frustrated than when they realize that while they’ve knocked themselves out to boost revenue, their profit—the bottom line—has barely budged. We don’t want that to happen to you. We also don’t want you to reduce expenses in order to inflate profit. A company that cuts is a company in decline.
We ask and answer ten questions before finalizing and implementing the coming year’s strategic plan. These questions ensure that the operations and financial functions support the company’s strategy.
Before I go on, I want to emphasize that profitable revenue must be non-negotiable. There can be no sale without a profit. No matter how much you want the customer, no matter how much you want to beat the competition or how tempting it is to make the sale now and worry later, you must make it clear that every sale must generate a profit. The formula is this:
Revenue = Expenses + Profit
The Ten Critical Questions Checklist
Hot off the press, so to speak, is the TCG Profitability Checklist. You can read the ten questions in this newsletter, and then print them for visibility on an office wall, sharing with your team, and otherwise keeping it front and center while planning for the next twelve months. It also serves as a reminder each quarter of what you decided and helps you check in to see how things are going.
Ten Critical Questions to Increase Profitability
#1. What products and services are you putting into the marketplace next year? Why? Who are the buyers? Are they the same and/or different from this year? Why? How so?
#2. What is the intrinsic value in each product or service? What is the change in value from the current year? If no change, why?
#3. What products and services will you add and what will you remove from your list of offerings? What is the rationale for each decision? What will be the impact of removing items? Adding new ones?
#4. What’s the value beyond the value? In other words, why will people pay you more than your costs to make or provide these products and services to the market? Options include convenience; quality; access; limited supply; timeliness; status that accrues to the buyer.
#5. Which current buyers are likely to buy this year? Make time to study your buyers and use all sources of information (especially customer service/delivery/front line people). Do NOT assume a percentage of last year’s buyers across the board.
#6. How will you invite current buyers to buy again? You must make an effort every year to keep people evergreen. Even an evergreen tree will wilt and die without proper cultivation and nurturing. How are you cultivating and nurturing the buyers you think of as evergreen?
#7. How will you ensure that buyers are happy they bought again? Customer service, delivery, Cultivate & Nurture, asking them “What else would you like?” Are all operations functions in place to ensure they’re happy repeat buyers?
#8. What operations will continue, be discontinued and added to support higher value and higher profits?
#9. What financial decisions will you make to ensure higher EBITDA (profit)? I.e., tax planning, borrowing, self financing growth, others.
#10. How have you articulated the requirement that there will never be a sale without also a profit? What support and guidance have you given to your sales, marketing, customer services and product development teams in order that they ensure profitable revenue?
My Most Memorable Profit Lesson
I’ll always remember one customer at my Café Aurora who challenged me about the price ($5.00) we charged for fresh, individually baked personal pizzas. She’d tell me that she could buy “the same thing” for $2.59 at the supermarket 3 miles away. I told her it wasn’t really the same. Café Aurora was right in her office building, not 3 miles away. The pizza was made from fresh, not frozen, dough. We ladled the sauce and placed the toppings and cheese on it when she ordered it, and in 5 minutes it would come out of the oven piping hot and ready to eat. So certainly, it was worth more than the $2.59 price of the frozen pizza 3 miles away that she would then have to heat herself.
I learned three valuable principles from that experience: increasing value is the way to ensure profitable revenue; value goes far beyond costs; and that every business need the right buyers for the value it chooses to offer.
Complete and serious answers to the ten critical questions will produce more profit and increase the strengths in your business all around.
Fingers Crossed is Not a Strategy!
If you think you could increase the likelihood for profit in 2020 by answering these questions and need some help, just give us a call. 703-801-0345. We offer three different options for working with companies on the 2020 Profitability Checklist; surely one will be right for your company.