Leadership

3 Ways to Focus on Your Profits

By Andy Hanselman

Updated on: June 11, 2010 / 9:12 AM EDT / MoneyWatch

Turnover is vanity, profit is sanity, and of course, cash is reality. It all seems so obvious, but it never fails to surprise me how un-profit-focused so many businesses are. Clearly, it's not just about profits, it's all those other things I'm often ranting about - delighted and devoted customers; committed, motivated and effective employees; standing out in the market place, creating a great place to work and having fun.

However, it's all got to make economical sense. Profit is not a dirty word.

So, here are three little ideas to help you focus on your profitability:

Choose 'em or lose 'em: Do you know where your profits come from? I don't just mean, what's left at the end of the month, but who, how and what drives the profitability of your business? It's a simple question, but many businesses cannot accurately determine their profitable customers and products. Work out which of your products and services actually make you money.
Think Value For Time: How much time does it take to produce a particular product or service, how much time does it take to maintain a specific account or relationship? Some relationships may look profitable on paper, but they are not done on paper -- they are done in the real world. Are yours cost effective? Also consider the cost of acquisition -- what are the costs in time and money to win these customers? Does it make commercial sense? Do you actually know? You may even need to learn to say no to some customers -- not an easy thing to do.
Involve your people: Most people don't know how business works. In really profit-focused businesses, people know the impact they have on profitability, both positively and negatively. I'm not suggesting that they should be able to recite the cash flow backwards or have an MBA in global economics, but find ways to get them to understand the scale of your running costs, how many products and services you need to sell and deliver a month, week or day just to open the doors. Ask for ideas to reduce waste, increase efficiency and effectiveness, improve profitability. Reward those who do.

Getting a profit focus needs to be a key driver for any business -- even more so in these tougher times. However, it's worth noting that in the words of Henry Ford: "A business that makes nothing but money is a poor business." It's true - but you do need to make some.

(Pic: codepinkhq cc2.0)