When Short-term Thinking Gets You in Trouble
A problem many leaders face is that they are the only ones who truly understand how the company makes money. When business is running well, that approach works. However, as soon as things start to tighten down: clients cut back orders, the bank refuses to extend credit, etc. – it’s easy to panic. To avoid the stress of impulsive short-term solutions, take a pause and start thinking long-term.
Do your employees know how they impact profit in your company and what daily activities make the money? In my experience there is no better time than now to explain the financials to all members of the team, so everyone is aware of the role they play in helping the company grow.
There are three ways to increase your profits, describe each of them to your staff:
- Volume. You can increase the number of what you sell.
- Price. You can increase the price you sell it at.
- Cost. You can decrease the costs it takes to produce what you sell.
If you create a language of growth — we increased our price by 15%, increased our volume by 5%, decreased our costs by 20% and brought in an additional $50,000 in our first quarter — you have suddenly given your people a way to see their significance to company’s bottom line.
This concept — volume, price and cost — is what I refer to as Profit Drivers. If you want to engage the entire company in a powerful way, take the following steps:
- Share how your sales volume is impacted and what your strategic initiatives are for maintaining, sustaining or increasing your sales volume.
- Clarify how you determine prices for your products or services. Keep it basic, but indicate why you can’t reduce them below a certain point or raise them too high.
- Discuss the costs of producing your service or product, including the key vendors and your ability to keep the prices under control.
By educating your employees on how the company makes and keeps money, you will be well prepared for any ups and downs that might happen in the future.
Need help with this topic or leadership coaching? Contact Mission Critical Teams.