3 Ways to Supercharge Profits
When you work in the trenches of your industry every day, it’s easy to become consumed with little gains and small profits. Day in and day out, you focus on the small things, celebrate the little victories, and reward progress where it’s made.
There’s nothing wrong with looking at little things. In fact, in today’s episode we’ll discuss how some of the small things are, in fact, quite important.
But there are times when big changes are needed. Sometimes you don’t have the time or the resources to play the long game. Sometimes the long ball makes it into the back of the net.
Today’s episode is not about making minor tweaks to your company. Today, we’re talking about some big ways that you can shake up your company and supercharge your profits.
On today’s episode you’ll hear:
- How to re-assess the clients you work with
- Ways to increase profits by becoming more efficient
- Why outsourcing some of your work is a consistent path to profit
If you’re looking for some powerful ways to increase your profit then this is one episode you won’t want to miss.
- Free Chapter of “Profit Leaks” by James Kennedy and Garret Carragher
- Mind Tools
Transcription of This Episode
The Gross Profit Podcast is your one stop shop on the path to profitability. Each week we share authentic advice on the positive, practical steps you can take to make the company you love more profitable. If you’re looking for a positive plan to help you avoid common spending mistakes, control costs, and increase your profits, then this is the place for you.
I’m Ryan Cowden and this week we’re joined by James Kennedy and Garrett Carragher. In this episode of the Gross Profit Podcast, James and Garrett will share some big ideas that will challenge you to think about profit at your company in a whole new way. When you work in the trenches of your industry every day, it’s easy to become consumed with little gains and small profits. Day in and day out you put your head down, grind it out, and celebrate progress wherever it’s made, but there are times when big changes are needed.
Sometimes you don’t have the time or the resources to play the long game. Sometimes the long ball makes it into the back of the net. There’s nothing wrong with looking at the little things. In fact, in today’s episode we’ll discuss how some of the small things are in fact quite important.
However, today’s episode is not about making minor tweaks to your company. Today we’re talking about some big ways that you can shake up your company and supercharge your profits.
On today’s episode, you’ll hear how to reassess the clients you work with. Take the time to figure out the gross profit percentage of each customer, and don’t be afraid to cut ties with your least profitable customers. Next, we’ll discuss some ways to increase profits by becoming more efficient. When you make efficiency part of the culture of your workplace, the small things you workers do can produce extraordinary results.
And finally, we’ll talk about why outsourcing some of your work is a consistent path to profit. As uncomfortable as it may be to think about, part of your due diligence should include exploring all options about increasing profitability. In our experience, there are a lot of ways to increase your profit if you outsource some of your work to other places.
If you’re looking for some powerful ways to increase your profit, then this is one episode you won’t want to miss. There’s a lot of actionable advice in this episode, so grab something to write with because you’re going to want to take notes. As always, I’ll be back on the other side to wrap up any loose ends. So without any further ado, here’s our conversation with James and Garrett.
Hello again, it’s James Kennedy here with the Gross Profit Podcast. You’re welcome back to another episode with my cohost here Garrett Carragher. Garrett, how are you today?
Great James. I’m super excited about today’s podcast. We’re… Is really looking forward to that. And, I’m also super excited because I believe our book is nearly completed and it’s ready to be published soon.
That’s right. It’s going to the printers next week I think. “Profit Leaks” which we have come back to as a title and of course listeners can get a free chapter at procurementexpress.com. I actually released it to… I showed it to the rest of the company this week, and think I got pretty good feedback on it. They were all impressed.
So, it’s a good read… Actually Garrett I have to say… I have to compliment you on your chapters in particular. They’re pretty entertaining.
Thanks James. Yeah, I think it was a good book. It was great project to work on. I think anyone listening should really go over there to the website and get themselves a copy and they’ll really learn some insights on how to make money on their business.
Well, when you think about it Garrett, really you cannot get enough of us two. Not only should you listen to the podcast, you should actually read our book when you’re not listening to the podcast.
Brilliant idea. And, I think in next week’s podcast James, we’ll have to do some kind of competition to give away a book to a lucky listener, and we can both sign it and send it off to first edition for their treasure troves.
And, that will be a banker. That will be worth money in years to come. First edition, I’ve had the original O.G. book, it has to be worth big money I’ll tell you. Okay, so let’s get stuck in, people have clicked on this podcast because it’s a three ways to supercharge your profits. Who doesn’t like just supercharged profits? So, we better deliver on that promise now Garrett.
No problem James. We’re always delivering don’t worry. And, this one is a good one on today’s podcast because today we’re talking about… Is we’re not talking about small little things to kind of up your profits a little bit by tweaking your Google Ad words a little bit or something like that. What we’re talking about is big ways to really hit your profits and really gives you… gives them a supercharge and really maybe boost them.
So, these are big ideas. They’re not going to be that easy to implement. They might be challenging but they really will help your profits. So, the first one I want to discuss is to dump your customers. Yes, I’ve said it. Dump your customers who are not profitable. That is the key. So, there’s a lot of stuff going on in that simple phrase. So, what does dump mean? Which customers and how do you know if they’re profitable?
Well, let’s break that down. So, if you think about who is a profitable customer, what does that actually mean? Are we talking about gross profit, net profit? Are we talking about contribution? So, what you need to do in that case is hire or get in touch with your management accountant and get them to analyze out your numbers.
And, what they need to do then is split your costs, direct costs that are attributable to each your customers and really put the costs in the right buckets against each of those customers, and that will give you a correct gross profit. So, when people think about gross profit, what gross profit really means is for every sale I make, what direct costs are going in against that sale? So, these are costs that are going in directly against a sale. So, a lot of costs are direct… There’s a lot of costs that aren’t direct.
So, you can think about things like rent of your building, rates, electricity, very difficult to actually split those costs in against each product or service. So in this case, what we want to look at is, if we’re fulfilling a need or are making a sale to customer be that a product or service, what costs are related to directly to that actual sale. Okay?
So, you can have a look at that yourself, you can get your management account to look at that, and I’ll give you a gross profit. And then, you look at an amazing percentage called your gross profit percentage. And, what you need to do with that number, is rank your customers based on that number. And, when you do that then you can see which of your customers are most profitable and which’s your least profitable. You can also do it by your product or service. So, which products are you making the most money on and which services are you making the most money on when you sell them?
Yes go on.
Sorry to interrupt you there because… I’d refer people back to the listener question we had a couple of podcasts ago where we had a listener who came in who was working harder trying increasing turnover but was not seeing an improvement in profit. And, I’ve actually had an update from the listener since, and she discovered that actually one of their biggest customers in the UK which was giving them… They’re a video production company and they were giving them a lot of videos.
On the back of that podcast they went and had a look and of course predictably they thought that, that customer was their best customer. Turns out they were the worst customer because they were making basically no profit on each of those jobs. And, that means now they’ve… As a direct result of that, they increased the profit and the margin on that job but moreover, probably they want to let go of that customer because they just realized they’re busy fools. Their working hard isn’t since improving turnover for the… They weren’t making any profit on an individual job.
And, I think if you’re not doing… This is actually a bit of a revelation for me since I’ve been talking to you Garrett. A lot of us hire an accountant say to do the financial accounts. So you think, “Yeah, I’ve got an accountant. That’s sort of covered off.” But I’ll just say a lot of listeners here, they don’t have a management accountant which is totally different apart from the commonality in the name.
I think it’s very easy to miss out that you actually need a separate accountant. Yep. The guy who does your taxes is probably not the right guy to help you do your management accounts.
Yep. 100% yeah. And, I think that was a good revelation to get that feedback from the listener that they’ve been able to actually take and borrow what we’ve told them, and implementing and actually make a real life change to sort of how to run their business.
So, when you think about accountants, yeah, you can have your financial accountant. Well a financial accountant is not really that useful in your day to day or running. If you’re management accountant you should give your management accounts which you can… The managers look at to help them to make day to day decisions and drive the business forward.
And then another one, and it’s probably what I’ve kind of fallen into myself as a commercial accountant, and a commercial accountant is somebody who understands actually in depth how business works, and how the industry walks that you’re in, and can really help drive the profit and the sales on a particular business. And, they can be super valuable to any business or really help drive them and drive their profits.
So, it’s good to get that feedback from the listener. So, that’s my first tip is, look at that, look at your GP per customer, look at your GP per product, your gross profit of product and service, understand that information, and make a real life decision. And so, who are your customers? Are you just spending a lot of time on they’re not making actually the profit that you require?
Now they can be making a contribution but are they making enough money for you? And if not, you need to have a think about it and later dump the customer, up your sale, up your price. That’ll help you to increase your percentage or whatever decisions you need to make, or really big decisions here. So, you might see a revenue drop in the short term but actually increase your profits in the long term. So, that’s my first tip.
The second tip I want to talk about is increase efficiency. And again, this is not a simple thing where we go in and have little look and buy more eco-friendly cars or electric cars. Really we’re talking there by really hammering home on your staff and making sure they’re doing things super efficient.
And so, with machinery you’re always able to look at efficiencies and there’s a lot of manufacturing efficiencies. If you look at vector machine, it’s very… It’s a lot more difficult with people, isn’t it? People aren’t same. Everything is… and especially with services. So, people are doing a service, but each service is kind of unique, isn’t? Is kind of bespoke, even though you might say I’m fitting a television for a customer.
Where is that customer based? What was the wall like if you did to television too? Whereas you have a machine making 5,000 widgets a day or a week. It’s the same 5,000 widgets in the same factory, by the same machine, same input. So, you can really dig down into that efficiencies on that particular machine.
Well, this is… I’ve come across this all the time. I think I love the listeners would. Where you’re running a business and everyone comes into work, they do their work which is fair enough, and they go home. But then, one thing we hammer home here at procurementexpress.com is have this idea, the ordinary things don’t consistently produce extraordinary results.
So, you can make small changes. If every staff member focuses on not just doing the work, but improving the way to work is done even by a little bit, in aggregate that sort of builds up into a wall of positive change hopefully. And, introducing ways of focusing on improving process change is… You have to come up ways of doing that. So, what we do every Friday is we have a show and tell. It’s an all hands meeting where people come in, and we are encouraged to show how you improve the business that week.
So, the idea is… We’re about 15 staff. Someone at that meeting should have something every week where we improved a little bit and it might be we improved the way we answered the phone, if might’ve been how we handle customer inquiries, it might’ve been how we build a software, could be anything and it could be a small thing. The point is if you do that consistently over time, those small improvements and changes, can actually make a big impact.
And sometimes, hallelujah, you do a small thing which might even sound small but actually result in a huge impact. Like an example for us was that, a few years ago now we started asking our customers how satisfied they were with the product. And the people who were most satisfied, we asked them to give us a review. And the result of that now we are the best reviewed software of our kind in the industry.
It was a small thing that took us about half an hour to set up with the software, but it’s actually a real competitive advantage. So, every now and again these small improvements could make an outsized return. If you introduced that culture of continuous… Some people call it Koisan. It’s not a Japanese term. So, continuous small improvements everyday reduce… Produce extraordinary results.
Yeah, the quick tip there James. I think constant innovation and constantly trying to bring in new ideas and new practices concerning… help any business to get better. And, we’re thinking about it. And the point here is, how can you do that and monitor it, and make sure that what’s happening is making it better or worse?
Sometimes it does work but a lot of times it doesn’t actually work. I know that from my own experience. So, if we think about efficiencies for people, the way how I like to look at it is, I like to set goals for them. So, certain targets to reach in a particular period of time, whatever period works for your business. You need to monitor that and then review it with the person. Once you review with them, you give them the feedback, develop a plan of action to take on for the next period, and off you go again. Just repeat those steps again.
So, you set up the goals, monitor, review, feedback, and then the actions. So, that allows you then to have a look at what should people do. And, you might need to develop new systems or our procedures to capture actually what you’re doing. That can be timesheets, I think we discussed stuff before in another podcast. Implement time sheets, you can implement some software to see what you’re doing, or just you can get customer feedback and see what the customers were saying back and there’s people… But really it’s a company wide thing.
What’s essentially to get it to work as you do it for all the employees, you do it fairly, and it’s done consistently. These are very important. And if you do that, you’ll see big changes in your business.
So now, fire your worst customers, get more efficient, who would argue with that? Now we’re getting controversial. What’s your last…
We’re getting controversial. Yeah, James. Well, we need a big one. So, the last one I would say is fire your staff. So, what do we mean by that? Well, what I mean by that is you can actually…
Oh Garrett I don’t think… I don’t see how we could misunderstand what do you mean by that. Seems pretty clear to me you’re no longer to secret CFO. You’re the butcher of the finance team. Maybe that’s… We’ll give you a new nickname.
The finance fire. Yes. You have to just look at your staff and really weed out some of the people who aren’t performing and moved them on to a happier place. So, people who really aren’t delivering… When you have a look… Just like you’ve had to do with some of your customers, when you look at your efficiency defining tip or have this… When you look at your… After you’ve done your efficiency and you’ve got people who are working very well for… whatever people, you can implement that ways.
The final thing is to look at which ones aren’t working and which ones you haven’t been able to implement at which, and maybe move them on or reallocate them or just say, “Look, this isn’t working out.” But there is models that you can use as well. It’s not only a moving… firing your staff and then you say, “Well, who does this work now?” And no one does it. It’s actually focusing down on your core competencies and your core activities that really generates, that make you different from other companies in the area that you work in.
So, what I’m really talking about here is you can actually outsource a lot of staff. So, I worked for a business before which did the outsourcing for a lot of big companies, a lot of farmer companies. So, the farmer would… They’re in high tech, high risk business. They’re making a huge amount of money and they’re doing… developing new products like vaccines, or they’re making tablets, or spending huge amount on an innovation. What’s not a key point for them is, how do you keep your business, and how do you keep your the buildings clean? Their offices, who cares. That’s not for them. They don’t really care about that.
They don’t want to hire people and think about that. So, they outsource it. So, what happens in that case is they come to a business like I used to be in to them, “We’re a high a network or high value business. We don’t really have time to look at this thing. You do it for us. We just pay you.” And so, we might take on their staff who used to work in cleaning, or we would bring in our own staff and do the cleaning for that business.
And, there’s actually a very useful matrix you can use called The Outsourcing Decision Matrix. You can find that online quite easy if you do a search for it. And, it would actually give you guidance on what to do, what particular suppliers, and whether to actually keep that in house or source it.
So, something that’s high for performance but is not a strategic importance. So, having your offices clean is obviously… You need to keep your place clean to keep your staff happy. So, that is… Those contribute to operational performance, but is it strategically important? No, of course not. So, something like that isn’t. You source it immediately.
Well, that’s good. But how do you feel about looking at… Nice when you’re looking at your spreadsheet and say, “Obviously we should drop staff number here.” Do you ever feel bad about moving people on or just for the sake of the company? How do you square it out in your mind? Or…
Well, I suppose when you think about finance and about businesses, the whole idea about finance is to maximize shareholder return. That’s what you’re taught. So, to maximize shareholder return you just work out the numbers, and a decision has to be made.
Now, it’s a bit like politics under the department of finance. So, the department of finance might let’s say, “We can’t afford to build an additional hospital or we can’t afford to build additional schools or…” But the politician will come along and say, “Well, actually people want this and we should build this, and is the right to do.” Or they might say, “I want to get re-elected in this area, so let’s build the bloody hospital.” That’s more likely what will happen.
So, all you can do in finance is give people information and then they can make whatever decisions they want based on that information. So, I think that’s… It’d be remissive of someone in finance or in… an accountant not to notice and to pass on this information.
But then it’s clearly up to the business owner to decide, “Well, I’m actually happy enough with the profits we’re making and I’m not going to source that. I’m going to keep that in house.” Well, sourcing is not always bad. Sometimes you get better terms, conditions if you move to an outsource model for the employee. And also, it can give them job security because even they’re not secured to one company.
So, if your cleaners there were just working for you James and then something happened, or you say, “I’m relocating the offices to another location.” They’re all gone. Whereas, the work for an outsource company who had the main cleaning that office, the outsource company will say, “Well, actually don’t worry. We’ve two more businesses down the road. We’re going to move you down to them. Start getting their offices now instead.” So, there’s good and bad to everything.
Well, yeah. I’ve had… We have this discussion with people in business and more or less of the people that moved on from companies I’ve worked on, they’ve all more or less worked, ended up in a better situation. If… Normally, the normal error is to hold on to people for too long for everyone involved.
And, a better larger picture is to… If someone’s not making a contribution, obviously, ultimately they know that on some levels it’s good for them, it’s not good for the company. And, so that’s good.
So, we have three solid ways you can supercharge your profits. In this episode we started off with fire your worst customers, make sure you’re doing proper cost counting, or find accountant like the secret CFO Garrett here or another commercial accountant who can help you figure out which projects are profitable and which are not.
So, even if you introduce a culture of efficiency which I guess you can do through goal setting, which is Garrett’s favorite technique. I like to surface and celebrate people who are improving or introducing efficiencies into business on a weekly basis, and we introduce a space where you can do that, and then finally fire your staff.
Controversial maybe, but I think you’ve hit the nail on the head there Garrett. The finance team is duty bound to at least surface that information, make it clear what’s right for the business, and then a decision could be made about what to do and by the ownership.
So truly, yep. That’s it James. That’s the three points for today and hopefully people can take them on board, and action them and move their business forward to higher gross profits.
Great. Okay, until next time.
All right folks, there you have it. That wraps up our conversation with James and Garrett. They shared a ton of valuable insights and advice today on some changes you can make that will have a big effect on your profits. We also shared some tools and resources, which will all be linked up in the show notes. Don’t forget to click on one of those links to get a free chapter from the book “Profit Leaks” by James Kennedy and Garrett Carragher.
I hope you enjoyed our conversation. Please consider subscribing, sharing with a friend or leaving us a review in your favorite podcast directory. Until next time, best of luck and all that you do and we’ll look forward to seeing you on the next episode of the Gross Profit Podcast.