Financial Strategies For 2021 Profitability

A CALL TO ACTION

The Time to Act is Now!

Many good solid firms are struggling with the economy and post-COVID-19 effects and are waiting things out. They have cut back costs as far as possible but are at a loss on how to increase sales and profits.  Here are steps you should be taking now to REV up Sales and Profitability:

1. First, understand your real profitability drivers.  Do you really understand why you made (or lost) $X.xx last month?  It is a combination of revenue levels, fixed and variable expenses, and some low and high margin customers and jobs.  If all you have to explain your profitability is a long P&L listing of revenue and expense items, you don’t really understand your profitability and can’t take necessary actions to drive improvement.  You must know your margins by individual product (or service), product line and customer, and understand your other profit drivers.
2. Re-calculate all of your overhead rates. In the past year, you have undoubtedly trimmed many costs and your other input costs have changed.  Your overhead base (machine hours, consulting hours, service hours, etc.) have also probably dropped.  Lower costs mean lower overhead rates.  Lower base hours mean higher overhead rates.  If you haven’t developed overhead rates to really understand the true cost of individual products or services, now is the time.  You might be surprised that you can actually sell at lower prices now and pick up sales volume.  Or, you could find that you are losing money with each sale because your costs have not come down in proportion to your “production hours”. Note this applies to service firms as well as manufacturers.  (Service firms:  do you know your hourly cost rates for direct, administrative, and overhead costs?).
3. Negotiate hard with vendors and show them how it can actually be good for them.  If you can lower your costs and drive more sales, both you and your vendors will benefit.  If your vendor won’t play ball, others certainly may.
4. Review your quoting model.  Does it include your new, lower overhead rates and purchase costs?  Does it show you your true cost of delivering your product or service?  Does it show you the true effect on your company of winning the business?  Your quoting model should break out incremental costs and show you the cash affect and overhead coverage and profit affect of producing or servicing the quoted business.
5. Use your new lower cost structure and quoting model to develop pricing strategies to drive new sales, and to evaluate your current business.
6. Analyze your customers using the above tools and an 80/20 analysis.  You may find you can reduce more costs by ridding customers that use many resources but don’t contribute much.
7. Develop detailed action plans to improve each of your main profitability drivers.  Assign an action oriented leader to head a team to analyze and improve each profitability driver and write down the specific goals, tasks, due dates and follow-up dates required to ensure each profitability driver is improved.  Set up a KPI (Key Performance Indicator) for each of your profitability drivers and chart its historical values vs. its new target values.

It’s time for a CALL TO ACTION!  Instead of waiting it out, let’s get going now.  If you don’t have these tools in place, let me show you how to quickly develop them.