How to Increase Profits by $50,000 in 12 Months
Many companies in the manufacturing, contracting and transportation industries struggle to increase profits. The perceived solution is to increase sales when the real problem is that the business is a “leaky bucket” of profits.
Think of your company as a bucket full of water. If there are holes in the bucket no matter how small the bucket it will eventually empty. To prevent this from happening, many companies will focus on getting more water in the bucket (increase sales). The bigger the leak the more water you need to keep adding.
Imagine if you could eliminate the leaks. The need to add water would be minimal, only through evaporation (natural attrition of accounts) would you need to add water. If your marketing and sales efforts are successful (adding more water) without any leaks your bucket would overflow with abundance (profits). To prevent water from overflowing (missed opportunities) you would have to increase the size of the bucket (expand the company) which is the more favourable solution.
A leaky bucket with a lot of new incoming water (new sales) is still a leaky bucket. The amount of water (profits) leaking can run into tens of thousands of dollars and more.
Here is the single biggest “leak” challenging most companies.
Labour is the single biggest cost item for most companies. Left undetected labour can break the profitability of another wise healthy company. Find benchmark information for your industry. You will find that every industry has acceptable labour to sales ratios, gross profits levels etc.
If your company is operating below average levels take steps to improve the ratios to at least Average levels. Some steps can include: (1) “right sizing” your company to reflect current revenue, (2) improving productivity or (3) increase the average transaction size. When this is accomplished start working on being in the top 25%.
Monitoring labour more closely can increase profits by more than $50K per year for companies with annual sales of over $1M.