Every manager, and particularly owner operators, is interested in increasing the profit of the business units they manage. Profit Savvy has distilled a wide range of advice and methods to enable you to do this and has grouped them into a Program we call Double Your Profit in 100 Days or DP100 for short. We present a series of activities so that you can realistically hope to double your profits from your existing business within 100 days. This part of the Program discusses getting ready to launch your DP100 Program.
There is no science to how you can improve your profits or turn around a lagging or troubled business but the group of techniques that have been collected in this Menu will give you some insight into opportunities to dramatically improve your profit.
This article will focus on optimizing your current business operation. It is not aiming to necessarily increase your revenue but to streamline what you have and thereby direct more money to bottom-line profit. Because that is simpler than increasing revenue, it can happen much faster. Its a good idea anyway because it would be wasteful to first focus on revenue increase if the business was not as efficient as possible already. That would mean missing out on maximizing the profit from the increased revenue.
Doubling your profit sounds like a very formidable task but even something as simple as increasing your prices by 1% can easily lead to an average of 11% increase in profit according to a study of 1,200 businesses. Similarly, careful application of the 80/20 Principle and the Theory of Constraints can have quite dramatic impacts on profit.
We have arranged the items in this Menu in the order that we feel flows the best. You can of course change the order in which you apply these tasks to suit your circumstances but quite often a method of improvement is ideally preceded by some earlier step. We encourage you to think about following this process before consciously deciding not to.
This article is about quick ways to improve the profit of your existing business. In another article (Double your Profit (again) in a Year article) we discuss how you can continue to grow your profit by growing your sales revenue using your soon-to-be lean, profit maximizing, business model.
To use a medical analogy, DP100 is the equivalent of triage. When a critical patient is first admitted to hospital, staff stabilize them and make the best of what they already have to work with. This is triage. Next, the staff work to get the patient onto a path back to full health and well-being. Our next Program, Double Your Profit in a Year is our equivalent to getting your business as healthy as it can be.
No surprise, Double your Profit means just that. But when you combine it with our Double your Revenue article, your profit can grow 400%! But wait, there’s more. Many of your overhead expenses like office space, marketing and IT will not need to double to double your profit and revenue. For the sake of a demonstration, let’s assume your fixed costs remain the same. Your profit increase is no longer 400%; it becomes 600%!
Worth investing some time and effort to get these sorts of profit gains?
Double your Profit is a Profit Savvy Menu meaning it is a guide to what is on offer and refers to various Recipes and Tools throughout Profit Savvy when you need a refresher on a topic.
Set Your DP100 Goal
There can be no doubt that you will not be able to work very far into turning your profit around until you have decided what your goals are for the business.
A business can have many different types of goals including, for example
- Rapid growth.
- Improved profitability.
- An exit sale at a good price and so on.
Some of these may be incompatible with growing profit. For example, it is often hard to grow both revenue and profit because the income is used to pay for resources necessary for growth thereby leaving less profit.
In this article, we have assumed that your goal is to increase your profit.
Even so, you can spend a few minutes looking at your SMART goals so that they are clear in your mind (see Goals article).
You will have variations on the actual SMART goals that you set but essentially your target is to:
Double Your Profit in 100 days.
Get Yourself Ready
Your journey to increase profit will certainly stretch your abilities as a leader and a manager.
We don't want to overwhelm you with detail in this Yellow Belt article. If you would like to know more on getting yourself ready for this process, read our A2.5 DP100 - Blue Belt article. There you can learn more about e.g.;
- time management
- a technique named Kaizen for systematically cleaning up your costs and
- ways of keeping a track on all the various steps you will be taking in the DP100 process.
For now, enough to know that starting your business was the really hard part so fine tuning it in DP100 is not hard in comparison.
Right People on the Bus
Jim Collins, in his well-known "Good to Great" books, uses this term to refer to having appropriate people ready to work on your business. He argues that it is more important to have the right people before you start on a business or project overhaul than it is to try and get them as you are part way through the overhaul.
There should be no doubt in your mind that you are embarking on quite a difficult task.
Managers are often the sort of people that can put up with more uncertainty than more junior staff. This means that although you might be comfortable with the amount of change that you are about to introduce to your organisation, many of your staff may not be.
They will quickly divide into 3 groups:
- Those against you.
- Those largely indifferent.
- Those in favour of what you are trying to do.
Early on, you should take a mental stock take on the personnel that you have available to you and roughly categorise them into these three groups. If you have very few that are likely to support your efforts, you might want to consider whether this is something that you are ready to embark on or whether you should take time to change your staff until you get those who might support you.
We also write more on this topic in our A2.5 DP100 - Blue Belt article under e.g. Change Management
Who is in the Team for DP100
Having briefly commented on staff, you will want to consider who gets involved with DP100.
One of the principal goals for this project is to move fast. Things will be less than perfect but you will make big strides nevertheless.
The fastest team for this project will be just you. But that will lack the insight that you will get from other minds. You will be better with at least one other person who will discuss things frankly with you so you get the benefit of two minds. If you are a larger business, a team of 5 plus or minus 2 (i.e.3 to 7), has been proven to be the most effective size. There will be an article on this at a later date. A further advantage of this is that you will have experienced staff for the next round.
We suggest you tell all your staff what you are doing and why so they will not think it odd to see you with a stopwatch. Also, depending on the nature of your business, you should make sure people don't think staff might be let go, You need to handle this carefully as, in fact, as you will read later, you might be letting people go. It is also ideal that you start to involve staff in the improvement cycle but starting out with that will slow you down so better to do in the next program; Redouble your Profit in a Year
At the outset, we said that this profit doubling could happen in 100 days.
Just how long it takes depends on several things.
Scheduling the Profit Makeover
Firstly, and importantly, will be the speed at which you can address the several separate activities that are listed in this document. If you can address one every 10 days then it is quite feasible to get it done in 100 days.
Some activities are comparatively fast and others are slow. For example, if you have a lease on a building it might be some time before you can cancel the lease.
Some have a major impact and others not so much.
We can throw all the proposed activities onto a simple matrix like the one that follows:
Easy to Implement
Difficult to Implement
Throw each of the tasks and sub tasks you have in mind to do in one of the cells in this matrix.
From this table, it would be common sense to do the Major Impact/Easy to Implement activities first and then move increasingly through to the Minor Impact and the most Difficult to Implement. That way you are getting as much of the increase in profit as possible as fast as possible. Note that some things may have upstream or downstream implications that you will need to take into consideration when scheduling action on them.
Another determinant of how long this process takes is how disciplined you are with your time management. If you use a good time management system to free up your time for major projects, you will progress much faster than if you have a poor or non-existent time management system. For more on time management see the discussion in A2.5 Blue Belt Time Management article.
Undoubtedly one of the major impacts on speed will be how many staff your business employs.
If you are small and really it is only you making management decisions, your speed will be the greatest.
If you have a lot of staff to both consult and to win over to the process, and the results which will impact on them, your progress will be slower. Staff may actively drag their heels which leads us to the next point.
Experts in this area say it is better to cut deep and fast and then patch up anything that comes unstuck rather than to have a prolonged period of continuous cuts that demoralise staff. They are kept worrying about whether their role, and maybe their job, are going to disappear.
The exception might be staff cuts so that you don’t remove a person then find you need them. Keep in mind that staff are often as much as 60-70% of the costs in a service business, not removing them will have a very significant impact on your profit gain.
As you work through the plan for optimising your existing business en route to increasing profits, you will be generating a large number of tasks as an outcome of the optimisation process.
These can rapidly become difficult to keep in your head and/or manage the process of executing them.
It is even more difficult if you have a number of people working on them at once.
A simple way to manage this process is to create a spreadsheet. Put all the tasks that you have in; one per line. You can add columns to;
- allocate to a staff member
- set a priority
- make progress notes
- set due date - and so on
If there are several people in the team, you can ideally use a multi-platform cloud based tool like Google Sheets so that everyone can connect, contribute and read on mobile and desktop devices.
There is quite a body of knowledge relating to how you process a large number of tasks in an optimal manner. There are also useful software tools for managing these processes. For information on these more advanced, Blue Belt, techniques, see our 2.5 DP100 _Blue Belt article.
Measuring what is important
We don't want to get involved with a whole lot of statistics at this Yellow Belt stage.
However, you might want to pull together a repository of some of the accounting and similar information that you have as you will be accessing it quite frequently.
If you have teams of staff working on DP100, they will certainly need access to whatever data you think is appropriate.
One way to manage this is via a Google Drive / Dropbox or similar cloud-based file system You can control who gets access to what data so you can arrange for staff to only see material appropriate to their company position.
Review Your Strategic Planning
You may already have a strategic plan, goals and objectives, mission statements and Key Performance Indicators (KPI). Well done you!
Because we are optimising your business, you need to review these existing documents to be sure they still reflect where you want to go. If not, they should be overhauled before starting the optimisation process.
We don't want to optimise for the wrong things!
DP100 is divided into several articles to be more accessible for you. These are;
- A2.1 Introduction
- A2.2 Getting Ready - how to prepare (you are here now)
- A2.3 Cost Reduction - the fastest step so probably where you will start
- A2.4 Increase Revenue - without making many changes to what you presently have, it is likely you can increase revenue. Options are discussed here
- A2.5 Blue Belt - Advanced Profit Growth Techniques
We are flexible over how you sequence the activities in DP100. But it is usually easier to reduce costs than it is to increase revenue so you might like to go to A2.3 DP100-Cost Reduction next.