Some of the best business advice I ever got came from a simple statement made by a very successful business professional: “A profitable business is simply a group of individually profitable people.” This statement changed my perspective.
There are a lot of ways to look at profitability. You can look at profitability by product or service type. You can look at profit per location, profit per hour or profit relative to budget. I believe the most powerful perspective is profit per employee or who I call a “Team Member.”
Take some time right now to think through your small business team. What does each person do? What do you pay each one? What overhead costs come into play? How does each person generate revenue and what expenses result from this revenue? Using a little basic math, some educated guesses, and a profit and loss report, you can determine which people on your team are adding profit to or taking profit away from your business.
- Action Step #1 – If you identify someone who is adding significant profits to your business as a result of his or her efforts, give this person the two most powerful rhyming words in management… Raise and Praise. Don’t lose your best people because you are trying to preserve overall profits. Instead, differentiate between the team members who are more profitable to your business than others and reward them accordingly.
- Action Step #2 – Once you identify the team members who are not profitable, start by blaming yourself. Did you make bad hiring decisions or did you not clearly communicate what they should be doing with their time? Even worse, did you ask them to do something that you later realized was unprofitable for your business? Use training and coaching to reallocate these human resources into more profitable work. If you made a bad hiring decision, be honest with the team member about your mistake. Let this person know that although your team is not a good fit for him or her, you feel he or she can be very successful when plugged into another more appropriate opportunity.
Make it a profitable day!