All too often, good revenue or sales performance fails to translate to the bottom line.
I recently gave a talk, Managing for Profit, at Kingston Smith in London W1. It was a practical session to provide insights into why some businesses achieve good profits year on year, and the importance of viewing profit as an objective, not a consequence.
To manage for profit you need a profit plan which runs over the whole business. You need to establish what is practical and possible for the business in a given year. It should be challenging to management but not excessively optimistic.
There are six key elements to a good profit plan:
1. Make performance a key responsibility. The responsibility for generating profit has to be taken across the business. Different people will come at it from different perspectives, so there needs to be ownership at the top but also down the business.
2. Understand how you charge. To understand where profit is made (or lost) your rate card should reflect the full operating costs of the business. You need to set clear utilisation targets and track against them.
3. Tightly control resource management. The phasing of revenue and people costs must be matched as consistently as possible. Importantly, project management should not be an ad-hoc activity.
4. Set clear new business objectives. Businesses need a clear new business model with strategies and tactical plans for both existing clients and new prospects. Consider both reactive and proactive initiatives.
5. Measure revenue confidence. Conduct account reviews each month. This will make your forecasting more accurate. It will make account leaders responsible for the projections they’ve provided in prior months.
6. Regular performance reporting. Businesses should measure both revenue activity and operating performance regularly. Develop a clear dashboard that consists of the metrics and KPIs needed to run the business. Measure and communicate performance regularly and clearly.
It’s important that a profit plan is not just a document. It’s a culture and mindset where every action and decision is considered in the context of its impact on profit.