In our last issue we spoke about different ways of increasing your business profitability, along with four options. While sales increased by “only” 80%, Net Profit increased fourfold. Net Margin more than doubled.
Remember, Net Margin is the only real focus point for your small business. Lack of cash flow is a symptom of death by profit margin starvation. So if you want time to enjoy life more, work on improving your net margin.
The two profit generation options we will now consider are:
5. Plug the leaks:
- Increase your staff productivity
- Reduce your direct costs (i.e. cost of sales)
- Reduce your overheads (i.e. operating expenses)
- Fix your non-performers
6. Increase your volume
Option 5a – Increase Your Staff Productivity
- Do you measure your per staff outcomes in terms of who is effective and who is not?
a) Sales value and pieces by each staff member
b) Sales Conversion rateo Average sale value
c) Production pieces ratings
d) Office transactions processed
- Do you have a program that reduces the amount of duplicated data entries that typically occur?
- Have you established Business Rules to drive your system?
Option 5b – Reduce Your Cost of Sales
- Try to negotiate with your suppliers to improve the supply chain, with a subsequent 5% decrease in sales costs. That’s an additional 5% flowing straight through to the bottom line of your current sales.
- Difficult? With one major supplier we negotiated a new method of service provision; and we both went away smiling. My company’s costs reduced to a quarter of what they were, and the supplier made more money because his overheads were so much lower.
Option 5c – Reduce Your Overheads
- Salaries and their related overheads are often the largest area of operating costs. It’s not difficult to design and implement systems that require less people. This is especially true once you have defined your business rules and allowed them to drive the process. Integrated systems—such as the flow of products, cash and information across functional lines—reduce the need to duplicate input.
- With one of our clients, we are in the process of replacing over 50 Excel worksheets with one integrated database. We’ve seen huge improvements in management control and a reduction in staff needs.
- Improve your data accuracy with barcode input. Here are some reasons why:
a) It’s faster than typing and virtually error-free; so the work needed to find and correct mistakes is eliminated.
b) Stocktaking by barcode takes hours instead of days. Barcode input is more accurate in a dynamic selling environment.
c) We implemented barcodes with point-of-sale computers at a Yoga Shop tent two years ago. We did it to help handle the mad volumes of people who had come for the crazy prices offered. Sales went up by 45% from the previous year. This was mainly because they had immediate insight into what was selling minute by minute, and could organise rapid replenishment where needed. Sales and profit figures in total—and by item—were available at any time. This change in strategy could be implemented on pricing and availability. The final management report was even available within 48 hours of the final sale and pack-up, so management and staff could get back to normal business faster.
I want to continue along the same lines next time. Option 5 has one more aspect which is all about fixing your non-performers. We will also delve into option 6 briefly.
CEO and Co-Founder
neXtep Business Builder Community Pte Ltd
Singapore ACRA Business Registration Number: 201424522Z
80 Kitchener Road #09-09/10 Singapore 208539