STRATEGIC INSIGHT to profit16 Apr, 2007 By: Tom Callinan imageSource
STRATEGIC INSIGHT to profit
Did you ever know a business person that was not trying to increase the
profitability of their business? There may be interim strategies to get to the
ultimate goal of increased profit—like investing to rapidly increase revenue—but
the ultimate goal is always greater profitability. Increased profitability is
an admirable goal; it provides the share holders with a return on their
investment. That return is the reason we all make investments. The million
dollar question, literally, is how do you increase your profitability?
Doing more and faster is usually not the answer; although, it is frequently
attempted. I know of only one long-term approach to increasing profit: A sound
business plan grounded with quantified and executable actions. To be
quantified, you need to layer into your plan reasonable assumptions. If one of
your actions is to increase your sales team by two over the next year, you need
to make assumptions about the expense, additional revenue, additional gross
margin, trailing aftermarket revenue from the additional placements, and the
cash flow impact. To qualify as executable, your team needs to have the skills,
behaviors, and experience to have a reasonable chance of success. If you’ve had
three different sales managers in the last two years and your rep turnover is 80
percent adding two additional sales reps is not an executable action.
My goal with this article is to provide you with some focus areas. Business
planning requires discipline and detail. Not all business owners posses these
skills / behaviors. That is fine; hire somebody that does to support your
business planning and execution efforts. You continue to do what you do well.
But somehow, some way, write a business plan and think about some of the
Get your sales turnover under control. If your turnover is greater than 30
percent you have room for improvement. Reducing sales turnover is like
strapping on rocket boosters. Not only do you save the fifteen thousand plus
that each turnover costs you in real dollars, but the actions you take to reduce
your sales turnover will increase the productivity of your entire sales team.
Areas to analyze for reduction in costs & turnover:
* Sales manager: Does he / she have the correct motivators, behaviors,
and skills supported with strong processes?
* Selection process: Who are you hiring?
* On boarding process: What does the first 30 days of employment look
like? Are you providing a springboard to success?
* Territory: Does the rep have a good blend of current customers and
* Sales process: Do you have processes that enable your sales team to
* Compensation: Is your team fairly compensated and does your
compensation plan drive the correct behaviors?
Increase your revenue. Not as easy as it sounds or as easy as we would all
like it to be. Reducing sales turnover will certainly increase your revenue.
After you get your turnover under control, there are areas in which you should
Areas to focus on should include:
* Use CPC leasing: It increases switching costs
* Sell more color: Drive B2C placements
* If you’ve good market share in the office segment move into adjacent
markets: Major accounts, GEM,
* If you have high market share, give consideration to additional
* If you have low turnover, add sales reps or another team
Do you want another great strategy to increase revenue? Sell print
management. I mean really sell print management—not displace printers with a
copier. I do not want to be too blunt, but printers produce two and a half
times the output of copiers at twice the revenue per print. Simple math would
indicate that there is five times the aftermarket revenue in the printer fleet
at the same 50 percent margin. Why do you want to go in and attempt to displace
a portion of the printers to get half the revenue and leave the remaining
printers exposed for a competitor to grab? Learn how to sell print management,
develop a plan, and execute. If you do not move aggressively into print
management soon, VARs and supply companies will have the printer contract and
will be gunning for your copier placements.
Increase your equipment gross margin. Most of the revenue generating ideas
will positively impact margins. For instance, lease revenue is usually more
profitable than cash sales and B2C is more profitable than B/W, so increasing
your lease and B2C ratio will increase profit.
Areas to consider to help you drive margin:
* Account reviews: Identify pain and heal it for the prospect
* Management engagement: Make certain the management team is involved
in strategy and tactics
* Scanning: A fairly easy to sell solution that will drive margin
* Variable data solutions: Another great solution that drives margin
Increase your aftermarket return. Are you realizing 50 percent contribution
out of your service and supply revenue streams? The highly profitable
aftermarket annuity is why we are willing to spend so much money to get that
copier / printer placed in the first place.
Areas to analyze:
* Revenue per placement by segment: Do you have acceptable aftermarket
pricing or are you short changing yourself?
* Revenue per copy / print: An even better look at the revenue picture
* Process to annually increase CPP charge on contracts
* Technician territory design: Number of clicks managed and customer
time vs travel time
* Level of technical specialization: The more specialized, the higher
the efficiency rating
* Recall and reschedule ratios by technician
* Total call procedure: First call effectiveness
* Parts usage budget at the technician level
* Management processes to coach technicians and address development areas
* Technical training matched to territory
Reduce your general and administrative expenses. There are basically three
areas where you want to focus: Occupancy costs, process, and automation. Flow
chart your processes using software like Microsoft Visio and look for redundancy
and handoffs as you work to streamline. If you are compiling reports manually,
look to automate by using the data that is already in your ERP. If you need
conversion software like Monarch or training for your staff in Microsoft Access
or Excel, make the investment. The low upfront cost will be returned many times
over with the increase efficiency.
Generate cash: Increase your asset turnover velocity. Make certain your
sales orders are billed promptly and invoices are mailed. Increase the ratio of
lease transactions to 80 percent plus all of your overall equipment revenue.
Manage your inventory turns. Set-up reserves for receivables and inventory and
use this visibility to help manage these assets.
I’m sure you have other great ideas on how to increase your profits. The key
is to start with last year’s results and adjust those for all known material
changes. No one gets it correct 100 percent of the time, so be willing to
adjust as you get more visibility & experience with the actions.