Increase Profits Without Adding Resources - Part 1

You can increase your bottom line by 20% without adding resources. Doubt that?  So did many of my clients in the beginning.  Since then they've identified a variety of operating activities that drain profits from their bottom lines.  Here are a couple of the profit drains they've identified.

Commodity pricing

When your customers view your offerings and your competitors' offerings as being essentially the same (as a commodity), price becomes the determining factor in the buying decision.  This means that most buyers won't allow you to charge more than your competitors are charging.  This effectively puts a cap on your revenues unless you increase your market share.  How do you increase market?  Lower your price.  Remember, in your customers' eyes everyone's offerings look the same, so you'll have to lower your price to gain their business.

Of course, your competitors are likely to follow your lead and lower their prices.  After all, they're fighting the same battle you are, right?  Ultimately, your whole industry suffers declining prices and shrinking margins.  That's the effect of commodity pricing.

The way you avoid this problem is to find a way to differentiate yourself from your competitors--to have your offerings viewed as having greater value than your competitors' offerings.  That's not as difficult as you might think.

Years ago, I worked for a packaging supply wholesaler.  Their offerings included cardboard boxes, plastic wraps, tapes and plastic fillers.  Pretty mundane stuff, wouldn't you say?  They were also readily available from a number of sources.  Yet, this company typically achieved profit margins 5% higher than the industry average.  How?  They included services that had little, if any, cost, but were highly valued by their customers.  Here are a few things that will help you differentiate yourself from the rest of the pack.

• spend a half-hour per month with each of your top ten customers; get to know their business; listen to their concerns and, in particular, listen for ways you can serve them
• share ideas you have on how they can improve their operations (remember that it's easier for an outsider to see inefficiencies than insiders)
• have your schedulers give a little more advance notice than your competitors do
• have your field superintendents take a few minutes to update your customers of the progress on their jobs each day

These simple actions serve several purposes.  First, they indicate your interest in your customer's welfare.  Second, they take away the anxiety your customer experiences when he's not kept up-to-date on his project's progress.  Third, they afford you the opportunity to serve your customers in ways you may not have envisioned.  In effect you can be positioning yourself for both higher prices AND more business.

As you learn which services your customers value and what they're willing to pay for these services, it becomes easier for you to communicate these benefits to prospective customers.  When that happens, you'll increase market share and revenues even though your price is higher.  Yes, I realize that some buyers in your market are truly price buyers.  That will always be true, but wouldn't you rather have them be your competitors' customers than yours?  Wouldn't you prefer to have customers who value service over price?

Here's one of the best suggestions I ever heard--each year evaluate all your customers.  Then take the 20% that are the worst (the customers who are the most price conscious, demanding and difficult to deal with) and refer them to your competitors.  Then replace them with customers who value service over price.  That's how you avoid commodity pricing.  When you raise prices without adding resources, the price increase shows up as bottom line improvement.

Productivity

There are countless hours lost each day because the people doing the work don't have time to think about what they're doing.  Take an hour each week and have a group discussion about a specific aspect of your company's operations--marketing, sales, production, administration.  Be sure to include people who don't normally do the work you're discussing.  Why?  Once again, it's easier for an outsider to see inefficiencies than an insider.

How do you choose people for these meetings?  Obviously, you want to include the people who do the work.  Beyond that you want to include your most creative thinkers--people who regularly find better ways to do things.  They'll serve as catalysts for improvement.  Why?  They're not vested in the "we've always done it that way mentality".

After you've identified the people, the first step in the meeting process is to notify the group that you need their help to find ways to do things more effectively.  One statement that has always worked well for me is, "I've never seen perfection; so no matter how good we get, there will always be a better way."  This simple statement removes most of the defensiveness you'd expect from the people doing the work.  It also allows your team to dream of being better than they already are.  That's heady stuff when what they usually experience is "the daily grind".

The second step is to give them two or three days advance notice.  This allows them time to think about the topic before coming to the meeting.  If you don't give them some notice they're likely to feel unprepared, which often causes mental blocks.  That can be embarrassing, frustrating and a general waste of time for all involved.  If you give them more than a few days' notice, they'll either forget the ideas they had or procrastinate so long that they come ill-prepared for the meeting.  That's why I suggest two to three days' notice.

The third step is to set the stage for an open exchange of ideas.  No idea is too silly to be heard and no idea should be dismissed offhandedly.  Each idea, even if it won't work as presented, often leads to ideas that will.

Encourage disagreement, but require all participants to be respectful of the person with whom they're disagreeing.  This is a case where actions speak louder than words.  If you tolerate disrespectful behavior in the meeting, you'll soon find your meetings being dominated by a few who don't value the opinions of others.  In the process you'll lose ideas that might help you improve your profits dramatically.

The productivity gains you'll get from these meetings will astound you.  How can I be so sure?  I've been using this technique for over 25 years in a variety of industries and it has never failed to produce dramatic gains.  Why?  People want to be valued.

When you solicit your employees' ideas, you credit them with knowledge, experience and insight.  The last thing they want to do is destroy the favorable impression you have of them.  That's why they'll work hard to help you find ways to improve your company's productivity.  Increased productivity means that your company can generate higher revenues without adding people.  When that happens you'll see more revenue dollars falling to the bottom line.

These are just two examples of how you can increase your bottom line by 20% without adding resources; there are more examples to come in future issues.

Copyright © 2002, Dale Furtwengler, all rights reserved