I just got done reviewing my income statement for 2005. I thought I was doing pretty well until I really looked at the numbers. Why wasn’t I more profitable and where does profit come from? How can I make sure I’m more profitable in 2006?
The obvious answer to where profit comes from is the math calculation of revenues minus expenses. But I’m sure that’s not the answer most of us are seeking. We want to know how to make our business more profitable, and while looking for ways to cut expenses and increase revenues is the undeniable way to reach this goal, is there a simpler answer to look for? Why are some companies more profitable than others for example? Why can two companies be in the same business/industry, with an equal number of employees and one is more profitable?
While there can be a myriad of answers, perhaps the one question you need to ask is what makes a customer willing to pay you more than the costs of ma, terials and labor that go into your product or services? Think about it. When you are away from home, on vacation or business, what places do you frequent for dinner, hotel, car rental, etc.? Are you the adventurous person who is always willing to try something different; or are you more frequently prone to follow the tried and true instincts to get something from a business you’ve trusted in the past? The reason the McDonald’s and other franchise prototype works is that people trust and have confidence in the name and brand. Even if you are adventurous, you may ask the locals for their opinion. If it’s a restaurant it is best to make sure the parking lot is full before acting on your impulsive nature.
Why do these places earn the trust of more customers? Because of their systems!
Any successful business that is truly making a good profit has developed systems that deliver predictable, consistent results. People pay you for the value your business has added to the resources used to create your product or service. It’s your business systems that add that value. If you’re having trouble raising prices, or competing with other businesses in your industry the place to look is inside the business. The perception in the market place is your business is not delivering the quality, consistency and predictability that your competitor is.
Improving perception takes time, as does building systems that provide the quality, predictability and consistency your business needs. And certainly business is a dynamic changing target.
One of my clients is in the software business to a niche market. For years they had planned to create a Windows based program to update and replace their UNIX system. They had maybe even dragged their feet on this, since in many ways the Windows program would not necessarily be a better program, just more familiar to the market. This past year they finally introduced it. It’s gotten rave reviews and not coincidentally this November they had their best month. Not just by a little mind you, but beating the next closest total by 46%!
How do you do that? How did they do that? I submit to you a better system - a system that perceptually gave their customers a reason to buy new or upgrade their current system.
My question for you as you begin this New Year; what do you plan to do to improve your businesses systems this year? Do you know what to do or how to gain the leverage on your business to take a major step forward to improve the efficiency, productivity and perception your customers have of your business? If you start today, you may have time to make some real gains on this year yet. But the clock is ticking. Real success, bottom line profits take months and even years to materialize because the movement from development to implementation takes time. It takes integration also. Just as no man is an island, no change or improvement takes place in your business in isolation. The more you systemize the more the waves move out and encompass every part of your business. Are you going to be standing here next year wondering why you didn’t make more profit, or will you do something today to insure your business has better systems and is poised to make the leap to the potential it should be earning?