Every decision is a profit decision

There are times when we know that our business decisions carry huge consequences.  Other times we think our actions are not so significant but they are.  Actually, every decision by every person in the organization affects the bottom line.  Those pennies really do make dollars.

I spoke to a CEO last week who told me they lost an existing piece of business and their profits went UP.  That’s right.  They lost revenue which made the bottom line improve.  The margins were so low on this customer and the overhead was high enough that it was a money loser for years.  Losing that business actually helped their profits.  Somebody made some poor decisions along the way.  Either the original sale had too little margin, or the costs weren’t estimated correctly, or something happened along the line to make this a money loser.  Was this done intentionally?  I doubt it.  Did they not pay attention when the deal was put together?  Maybe.  Or more likely is that the deal was marginal when it came together but the was “adjusted” for some reason to make the deal a loser.

Those adjustments might be things like customer demands, creeping overhead, or other increased costs.  And all these explanations involved people making decisions that caused those loses. That is the point here.  All of our decisions are profit decisions.  Hiring one more person is a profit decision.  We hope to increase our profits with that one more person.  At least you should think that way.  Don’t hire someone just because you “need help”.  The project you need help with must either add to revenue or reduce costs.  If it doesn’t do that, it’s stealing from profits.  Every person you hire, every item you purchase, every piece of paper or paper clip you buy or maintain is a profit decision. Every minute that you spend at work is too.

Everyone needs to think this way.  If the business leader doesn’t constantly assess revenue versus costs, the business will soon be gone.  But if everyone in the organization keeps this in mind, we all move as a team toward good decisions that lead to profits.  We help each other make better decisions and hold each other accountable to common goals.

Sales: your sales feed our entire system.  Volume means nothing if margins are thin.  Cherish your good margin customers.  Don’t take deals if they don’t meet margin standards.

Management: Keep an eye on the numbers and watch for trends.  Your budget is a guideline which needs to be used until it’s adjusted.  Be prepared to give substantive  feedback on the present and the future.

Everyone:  Your employment here is based on your ability to bring value.  Every decision made by you and your coworkers move this organization either toward success or oblivion.

Let’s all make good, analytical, and thoughtful decisions.  That will add to profits and bring you success instead of inching you and your company toward irrelevancy.  Bob R