Who is responsible for profit in your company?
They say it’s lonely at the
top. For many CEO’s it can be very lonely when it comes to responsibility for
profit. At a recent presentation for a group of CEOs, I asked the question,
“Who is responsible for profit in your company?” The answers were not surprising.
While several said it was the CEO, CFO, or the senior leadership team, the
overwhelming majority responded that everyone in their company is
responsible for profit. While the CEOs believed this, when we begin working
with companies this is one of the questions we ask a cross-section of employees.
We rarely get a consistent answer.
“Everyone is responsible
for making a profit.” Is that really true? We all like for our co-workers
to be thinking about profit, but are the pieces in place to support this grand
idea?
- Profit Must Be Clearly Defined, Visible, and Understood
Can
employees clearly see how profit is generated? In many organizations, profit is
the “mysterious” remainder of the monthly aggregation of revenues less the
aggregation of costs and is not known until after the month is over…too late
for co-workers to do anything about it. How can we expect them to affect
something that seems too complex for any mere mortal to understand?
- Is the Company Organized for Profit Management?
Decisions need to be made close enough
to the customer to impact profit on a daily basis.
- Metrics
Are you measuring and reporting against
profit at an individual customer or individual product level on a relatively
frequent basis? These metrics need to be visible to the entire company? At
least the pieces they can affect!
- Are Compensation and Rewards Aligned with Net Profit?
There’s an old expression:
“You get what you pay for!” In the world of compensation it is very true. If
you are compensating the sales and marketing departments for revenue generation
and operations for achieving AVERAGE product cost, the expected outcomes may
surprise you. Even though revenues may increase, being on the incorrect extreme
of those average costs can cause you to have very poor results. Compensation
plans need to directly reflect the achievement of NET PROFIT PER CUSTOMER.
THE RESULTS CAN BE
COMPELLING
One client company that now
has a clear view of customer profitability and an employee group reorganized
around responsibility for profit has seen dramatic change. In the first full
quarter of implementation, this wholesale distributor saw customer net profit margins
grow by FIVE PERCENTAGE POINTS in the targeted customer groups.
On an annual base business
of $10 million, that’s a $500,000 increase in net profit; at $70 million in
annual revenue, that could be a $3.5 million increase in net profit.
The Mead Consulting Group has a proven process that
helps clients to develop customer profitability analysis to focus on the
customers that drive increased revenue growth while reducing the impact of
unprofitable customers. You can see an overview
on our website. Contact us
for a free consultation.
