Do your employees know how they impact profit in your company? Do they know how the activities that they do every day will make your company money?
There is no better time than now for you to stop thinking short-term and start thinking long-term. You heard me. Yes, I know you may be scrambling to stay afloat right now. I know your profitability may be in the tank. I understand the knot in your stomach as you try and make payroll every other week.
Part of the problem you may be facing is that up to now, you have been the only person who understood how your company made money. And when things are running well, that approach can work.
But the inefficiencies that existed in your company when things were running well and you were making money are now bubbling to the surface. Every little issue that you didn’t have time to fix when clients were throwing money at you and you were on the top of your game will now be the same issues that drive your company to the brink.
Now, more than any other time in your company’s history is the time to really think about how your company makes money. And it’s time you start sharing that secret with every single employee.
When an unexpected global pandemic hits, shutting entire economies down, when clients start to cut back orders, when the bank refuses to extend credit, it’s easy to panic and start looking at short-term solutions. Solutions that may include reducing expenditures, not hiring new staff, laying off existing staff, taking a pay cut yourself, asking your executives to take a pay cut, you know the drill. These will certainly help staunch the bleeding for now, but they aren’t long-term fixes. They’re Band-Aids.
There is no better time to start taking a much longer term view of your company’s strategies than when everything is on the line. And that starts with explaining the financials so that every single employee understands how you make and keep money. Take the time to educate them on the role they play in helping the company make and keep money.
If you explain to your employees that there are three ways to increase how much money you make:
1) you can increase the number of what you sell (volume)
2) you can increase the price you sell it at and (price)
3) you can decrease the costs it takes to produce what you sell (cost)
AND you help them see how they play a part in all three of those activities — lights go on!
Suddenly, the financials are something they not only understand, but something they can talk about.
Because of the pandemic, the numbers may not look good right now, but hiding the reality of what’s going on from your employees will only makes things worse. You need to be honest about the company’s situation and empower your employees to help see the organization through this tough time.
If you can get everyone thinking and talking in these terms, using 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 every single employee in your company a way to see how their role impacts your bottom line.
This language of growth starts to decrease anxiety as your employees begin to gain a better understanding of what is going on in the company. Simply by knowing which numbers to pay attention to, they will feel more in control of their jobs and their lives. Even that small amount of control is an invaluable gift in a world filled with uncertainty. And only you have the power to provide that to your employees.
Not only will sharing and having conversations about these three areas help your employees feel more secure, it will also help your company continue to grow. If employees understand how they can bring value to the company and see how that value directly impacts the company’s bottom line, you start to build a longer-term solution to your company’s future. Employees will consistently know where and how they can make a difference. They’ll be more likely to seek out ways to help improve the bottom line on a daily basis.
These three areas — volume, price and cost — are what I refer to as profit drivers. Here are three steps you can take immediately that will help you weather this crisis and any we’ll see in the future:
1. Share with your employees how your sales volume is impacted and what your strategic initiatives are for maintaining, sustaining or increasing your sales volume. The sooner your employees understand your sales strategy and what proactive measures you are taking to improve them, they’ll start asking how they can help.
2. Share with your employees how you determine your price for your products or services. Keep it basic but take the time to help them understand why you can’t reduce them below a certain point or raise them too high. What you are doing is helping your employees understand the thinking behind how the company makes money. Don’t leave them in the dark, especially during difficult times.
3. Talk about the costs of producing your service or product. Explain that you work with key vendors and that the relationships you maintain with those vendors are critical to your ability to keep your prices under control. In difficult times, those relationships you have created with those key vendors may be the saving grace for the company’s ability to remain competitive.
Getting people in your company to talk about profit drivers and to understand what role every employee plays in each of the profit drivers – volume, cost, and price – is a powerful way to engage the entire company in understanding how three very basic financial concepts impact your company. Each employee will better understand the impact they have on those three numbers and therefore will be more aware of how they can help improve them. They’ll become more proactive in their problem solving because they’ll be continually monitoring these numbers. If they see a dip in one of them, they’ll look for ways to correct it, perhaps before you even notice there’s an issue.
When the economy does start to open back up, and it will, you’ll have taken critical steps in helping your company weather the next slow down by educating your employees on how your company makes and keeps money.
Written by Laurie Taylor of Flashpoint! LLC with edits and additions by Clay Eure.