Previously, I provided the key ideas I found useful in the book, Islands of Profit in a Sea of Red by Jonathan Byrnes. (Editor's Note: CLICK HERE to check out Joe's previous column.)
So, I want to take those concepts and expand on them further, primarily six myths that at one time were probably true and helped businesses grow and become more profitable. The issue is that times have changed and not everyone has evolved along with new business norms. In particular, the snow and ice management industry has historically been a little slower than most when adapting to change. Don’t let this be you.
So, here are six myths to drop to increase your profitability.
If it ain’t broke, don’t fix it.
The best companies are, well… the best because they’re not resting on their laurels and are always looking for a better way to do things.
I heard a speaker say, “If in business you ever think you’ve made it, that will become the inflection point for the start of your decline.” What he’s saying is you need to keep evolving and finding what your customer values. Leading companies are desperate to get better.
Pill Pack is an online pharmacy that fixed something that wasn’t broke. It found a way to make it easier for its customers by packaging its pills not by pill type, but by when you take them.
Not fixing something that isn’t broke is surefire way to tank your profitability.
If everyone does their job well, the company will, too.
This may have been true at one time, but things have changed. Now we must look at the bigger picture.
A company can meet its sales goals, and operations can meet its goal, but the company can still miss its profit number. Sales can't just worry about selling more, they need to think about what operations can deliver effectively. For example, if operation cuts production costs on something that no one really buys, it’s not really saving anything, is it?
To be effective, each part of the organization must work within the constraints that the rest of the organization has established.
Sales sells; operations deliver.
This is true in a transactional, commodity-focused business model with one-off sales where you only compete on price, but not in a relationship-driven model. Sales can no longer just sell, blissfully unaware of what production can handle and the constraints they face. Likewise, operations are now more integrated with the client and is really part of the sales team to ensure renewals and additional work. As your clients consolidate their vendor base, you must change how you do business to remain part of the team.
Revenues are good. Costs are bad.
As you blend sales with operations and focus on overall profitability, you can see jobs more holistically to better understand their profitability. You will realize sometimes spending more is okay.
For example, some companies don’t allow overtime because it is viewed as an added cost that reduces profitability. Truthfully, the cost of overtime isn’t inherently bad, it’s only bad if it’s not built into your pricing model. Overtime can be good and help improve profitability. For example, overtime is beneficial if it is used to increase revenue by being able to get more jobs done in a given week without having to buy additional trucks and equipment or set up additional crews.
You must consider a job’s total cost and its revenue, to get a clearer picture of the profitability for each service, client, and transaction. You need to determine what types of jobs make you the most money, and what types of clients are your most profitable. It will be clear – not all jobs, costs, or revenues -- are created equal.
All customers get the same great service.
This can’t be true, because we now know that not all customers are created equal.
You need to determine which customers contribute the most to your profitability. Plot your customers on a grid with frequency of purchase across the bottom and profitability of purchase on the side and determine which quadrant they are in.
High Frequency/High Profit -- These are the accounts you want to get closer with and give the best service to. I’m not suggesting you stop serving your other customers. Instead, you just need to find ways to service them based on what they are worth to you and your profitability. Maybe that means a customer service number instead of an account manager. Regardless, you need to figure that out and it will be different for each level and each company.
Give the customer what they want.
This is nonsense. The analysis up to this point should make it clear that you can’t do everything for everyone and be profitable. Determine what it is that you do well, and what it is your customers need. Answering this simple question will put you well on your way to improved profitability.
Industry veteran, speaker and consultant Joe Kujawa is the former president of KEI. He is 2016 Leadership Award recipient and a frequent Snow Magazine contributor.