The last ten months of this NEW ECONOMY have proved to be a trying time for anyone working in business. Revenues have been in a free fall for some time now. Many businesses have seen revenue levels drop anywhere from 10 – 40 percent. That decrease represented the profits for many businesses. When that profit margin was eroded, owners and managers were forced to cut labor and expenses to the bone. This has had a dramatic effect on all employees. I know of one business where the managers and employees have taken a 20% pay cut just to keep the business afloat. They are working harder and operating with a lot less today. Simply put – everyone is trying to do more with less.
Despite all the cuts, many businesses are still struggling to get their profitability into the black. The good news is that the economy seems to be taking a turn for the better, but it is much slower than most of us were hoping for. So what can be done right now to generate more profits? It is no secret that revenue minus expenses equals profit. So let’s talk about a strategy to increase revenue and decrease expenses.
We have all attended sporting events. At every event there is a scoreboard. The fans, players, coaches and team owners can all see the scoreboard. Everyone knows second by second which team is winning and which team is losing. There are no surprises at the end of the game. If this works in sports, why don’t businesses share their “financial scoreboard” with their employees? What are they afraid of? That is why it’s lonely at the top! It is my experience that most business owners and managers try to shoulder the burden of profitability by themselves. They are reluctant to share the financial “scoreboard” with their employees. Yet it is the employees, in many cases, that dramatically affect revenue and can help control expenses.
Let’s start by discussing how to further control expenses. Have you ever been at a nice restaurant and witnessed a server dropping a plate or even worse a tray of plates? Often in a nice restaurant one plate costs $28.00. A typical nice restaurant, after taxes, makes 5 percent on revenues. How much does the restaurant have to sell just to pay for one broken plate? I have asked many servers this very question and none can give me the correct answer. That … is sad! They should all know the answer, but their boss has never told them the impact they directly have on expenses. Sure dropping the plate may have been an accident, but it still costs the restaurant money to replace that plate. Here is the answer the restaurant will have to sell $560.00 in meals just to pay for one broken plate. $560.00 times 5% equals the $28.00 plate. What if it was a tray with six plates broken? The restaurant would then have to sell $3,360.00 just to replace those plates. Staggering isn’t it?
Here is another example. We have some clients that operate and manage apartments along with commercial properties. Two of those companies have their employees operate lawn equipment during the mowing season. One client so far this summer has paid out over $3,000.00 in lawn mower repairs alone due to employee abuse. The other client has had no lawn mower expenses. How can this be? Well, the client with no expenses has each of his mowers serviced annually by a professional. Then he checks out those mowers to his employees. They than are individually responsible for their particular mower. If the mower is found to be abused in any way and requires repairs, that employee foots the bill. Consequently, if the employee’s mower shows no abuse at the end of the summer, that employee gets a bonus. The client with the high repair bill does not have such a policy or understanding with his employees. If his employees damage a mower due to carelessness, it does not affect that employee’s pay in any way.
The first step to profitability is making your employees aware of just how they impact expenses. What are the plates and mowers in your business? Also, how can you create a reward system if employees save you money?
Let’s talk revenue generation! Your front line employees have a dramatic affect on generating revenue for the business. I am amazed how few front-line employees follow a strict sales process. Greeting, understanding customer needs, explaining products, suggesting additional merchandise, securing the sale and thanking the customer are skills foreign to many. Again, in many cases, the employee’s lack of understanding the sales process usually does not affect their income. If I approached each of your front-line sales employees, would they be able to rattle off your particular sales process? Each of your employees should be encouraged to constantly think of creative ways to bring in new revenue for the business. If they do, they should be rewarded for their ideas if they bear fruit!
The profitability of your business is a group effort. It all starts with engaging front-line employees, top to bottom. It is critical that management challenge and solicit employees’ creative strategies and ideas on generating revenue and controlling expenses. It does not have to be lonely at the top. By finding new and creative ways to share the financial scoreboard of your business with your entire staff, you are well on your way to producing new profits for your business.
