Profits are the end goal of every company. It’s seems straightforward–if we just focus on profits, we’ll succeed beyond our wildest dreams!
We all know from experience that it’s not so easy.
I find that the best way to profits is to understand their meaning, not just their dollar value.
Profits have different meanings within your company. Beyond the dollars, profits tell you about your strategy, your planning, and your execution.
While the calculation of profit –Revenue-costs (expenses) = profit– is the same no matter which services you’re analyzing, the meaning of those dollars to the firm is not the same.
The Calculation of Profit Doesn’t Tell the Whole Story
As costs get higher or lower, profit goes in the opposite direction.
So, if you can increase profit by reducing costs, why not? And if you can increase the sales price to cover higher costs, what’s wrong with that?
I think focusing only on the dollars is shortsighted.
The Meaning of Profit
Is it true that profit has meaning to the firm beyond the actual dollars?
Yes. I see time and again that a firm’s ability to make a profit, and increase profits, derives from the meaning of that profit to the company.
Consider the following factors. They all impact the profit to the firm as a whole.
Client Focused Meaning
Quality of content: Are your services routine, prepackaged, or customized? The profit generated by customized services has huge meaning to the firm. It improves relationships; tends to generate loyalty and referrals to like minded people; and allows your firm to be highly differentiated from all competitors. The profit dollars from customization have far more meaning to the firm that the profit dollars from a pre-packaged offering.
Services required: If your offerings include extensive services to the client (frequent meetings and communications; responsibility for follow up; providing access to limited resources) the profit dollars have more meaning to the firm because of the intimacy built and nurtured over time.
Relationships: Close relationships with clients typically lead to longer term engagements, larger projects, the feeling that your firm is an indispensable partner to the client. These delighted clients make introductions to people of similar nature, so you get a head start with new clients.
Longevity: the longer your relationship with a client, the lower your costs, even if the actual dollar costs don’t change. I’m referring to the costs of energy and effort and the time it takes to know the client more deeply. These are all costs that typically don’t get included in the dollar costs even for services firm. Thus, the profit dollars from long-term clients have more meaning to the firm. And you typically can start new projects or provide new services with a short period of marketing/sales efforts.
Impact of value delivered and what the purchase means to the buyer: When you know clients really well, you can offer more value without incurring new costs. The profit has more meaning to the firm.
Company Focused Meaning
How each service fits in with the other services you offer: When you think of the meaning of profit as separate from the dollar value of profit, you take a fresh and deep look at your whole array of offerings. Where do offerings create a sequence? Where are opportunities to add depth or breadth? What has been missing? What do you no longer need to offer, or it be folded it into something else? The more connected your offerings are, the better your chances of keeping clients for years and years. That gives profits great meaning.
The relative value of one service to your other services in the eyes of the buyers: When you have an array of services that complement each other you’re able to move clients from one offering to another. The profit from the first one has meaning and the profit from subsequent ones have even more meaning.
Learn the Meaning of Your Profits
You can start learning the meaning of your profits at any time. Today, in fact!
Pick just a couple of your services and ask:
- How are they connected to each other?
- To longevity of client relationships?
- To high or low value?
- To the intangible costs of energy and focus?
- How can you add or subtract services to increase profits?
This is critical work for the firm Owner or Executive. It’s a decision making effort, that will hep you ensure the value of your firm over time. It’s not something to delegate to the accountant or to bookkeeping software.
If you’re unsure how to study the meaning of your profits, ask me to help. We can do a one-time Think Tank (90 minutes, $375.00) or a 3 months-long analysis and planning engagement.
Text PROFITS to 703-801-0345 to get started.
