Welcome to part four on Strategy is your firm's strategy driving sustainable growth? If you are a new listener welcome to Inspiring Greatness where we interview amazing guest or share business tips on how to help you grow your business and increase profits. If you have not listened to our series yet you should start at episode 171 first.
Part one was Simon Sinek’s golden circle understanding your WHY and core purpose. Part two identifying was operational activities can you do 3 to 5 activities that set you apart from the competition - These are process that your company uses to deliver your products or services. What makes your company different? Part three is all about how your company can surpass the competition! We highlight the difference between a SWOT & SWT analysis (Strengths, weakness, opportunities and Threats vs. Strengths, Weaknesses and Trends. Today’s exercise we will cover Profit per X which is a number that could precisely drive growth in your business! I will highlight some examples for you to help get your mind going.
We have FREE worksheets on our show notes page for you to download. If you are stuck on your strategy, I would be happy to help. You can book in a free 30-minute call with Shelley Rogers.
Imagine a number that could help you determine your strategy on where to put additional locations. Imagine a number that you could consistently review that would always tell you whether you are trending forward or backward? Imagine one number that could be precisely what drives your business? That’s what profit per X is. What could that mean for growing your business?
Here’s the insight from Good to Great: “…one particularly provocative form of economic insight that every good-to-great company attained, the notion of a single "economic denominator." Think about it in terms of the following question: If you could pick one and only one ratio-profit per x (or, in the social sector, cash flow per x) - to systematically increase over time, what x would have the greatest and most sustainable impact on your economic engine? We learned that this single question leads to profound insight into the inner workings of an organization's economics. Recall how Walgreens switched its focus from profit per store to profit per customer visit. Convenient locations are expensive, but by increasing profit per customer visit, Walgreens was able to increase convenience (nine stores in a mile!) and simultaneously increase profitability across its entire system. The standard metric of profit per store would have run contrary to the convenience concept. (The quickest way to increase profit per store is to decrease the number of stores and put them in less expensive locations. This would have destroyed the convenience concept.)”
Let's look at another example a company called New System Laundry is a textile and linen service company in USA, serving the restaurant, hospitality and healthcare industries. They pick up, clean, fold and deliver linens, work apparel, and other textile goods for their customers. Imagine if you owned a laundry company. I realize you do not but let’s just think about some activities you could track.
These are a few examples however, New Systems leadership team, identified the most controllable and scalable measurements for Profit per X as ‘Gross Profit per Delivery.’
Overhead expense is not included in this approach and the objective is to maximize revenue per client delivery (upsell and layer more products/services for existing clients to use) and to minimize the cost to do so (reduce transportation, labor, COGS for client delivery).
The concept of Gross Profit per Delivery is becoming a focal point for ALL employees in New System Laundry through time. If every team member can grasp the concept of Gross Profit per Delivery, then they can simply ask themselves and work with their direct managers to determine how their day-to-day role contributes to optimizing it. Profit per X becomes a key aligning metric for an organization and builds teamwork when done well.”
New Systems knew that if they continued to improve his profit per X they would be contributing handsomely to the growth of his business. The whole idea of what to do in a business changes with this insight. Suddenly everyone is focusing on exactly what needs to be accomplished in order to succeed.
Not many companies put a great deal of energy toward this exercise. Why? Because it is difficult to determine. Once you decide what it is you need to measure and monitor it to make sure it is driving your economic engine. And it can change as the market changes.
Good to Great points out: “The denominator can be quite subtle, sometimes even unobvious. The key is to use the question of the denominator to gain understanding and insight into your economic model.”
Even if you have your economic indicator determined it won’t provide insight unless you remain disciplined to review and monitor it.
Discovering and sticking with your Economic Denominator/Profit Per X requires discipline. It’s something few businesses do. It’s why there are few great companies. Great businesses do what good and mediocre businesses fail to do. Looking for best business practices and a coach that will make you accountable to achieving them? You can book a corporate retreat or strategy coaching package with Shelley Rogers.
Profit Per X is an element of Strategy. Strategy is one of the Four Decisions you need to get right or risk leaving significant revenues, profits, and time on the table.
Can you state your business strategy in one simple sentence? If you answered no, I suggest you book time this week with your team to work on your business strategy. Get your free worksheets just head over to maxumcorp.com.au/podcast episode 174 so you can get started on figuring our your businesses Profit per X
Quote legendary Japanese swordsman Mr Musashi -
“Perception is strong and sight weak. In strategy it is important to see distant things as if they were close and to take a distanced view of close things”
This book is written so everyone -- from front line employees to senior executives -- can get aligned in contributing to the growth of a firm. There's no reason to do it alone, yet many top leaders feel like they are the ones dragging the rest of the organization up the S-curve of growth. The goal of this book is to help you turn what feels like an anchor into wind at your back -- creating a company where the team is engaged; the customers are doing your marketing; and everyone is making money
Be sure to listen to next week on The X Factor on how you can gain 7 to 10 times advantage on your competition and don’t miss the final episode 176 on Strategy where we dive into your BHAG.
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