What is overlooked when it comes to improving profit?
Reducing cost is vastly overlooked in many organizations when they want to be more profitable. This is due to:
- The lack of expertise in specific areas of the business
- Budget constraints i.e outsourcing the project
- Busy personnel primarily focused on top-line growth
There are many wasteful activities and spending happening continuously that could be streamlined to enhance profit. The bigger the organization, the bigger the opportunities.
A typical business with 50 employees averages around $7,000,000 in annual revenue with an average revenue per employee of $140,000.
Business profit margins vary from one business to the next, and by industry. But the average net profit margin in the U.S. is approximately 6.9% excluding financial companies.
Therefore, a business with 50 employees has a net profit of approximately $483,000 ($7m x 6.9%). For this business to increase its profit, it has two options:
- Increase the sales of its products or services, which could also require increasing its workforce and/or expanding its facilities, or
- It could simply reduce its expenses: Let’s say expenses are $1,100,000 (excluding payroll). With just a 5% expense reduction the business could save $55,000. That’s an 11.4% profit increase equaling a sales increase of $797,101!!!
Increasing sales vs. saving
Increasing sales without first implementing a savings strategy may put stress on cash flow. So how much can you really save?
In an organization, even 1% savings of total spend can add up to thousands or maybe millions depending on the size of the business. By implementing the right cost reduction strategies, 70% of companies can achieve anywhere from 5% to 20% in expense reduction. The right strategies not only bring pure monetary savings but also result in soft savings. Soft savings include eliminating unnecessary and non-value add activities that take up employees’ time.
Examples of Profit improvement opportunities
Reducing expenses in many areas such as leased copiers. A staggering 98% of businesses that lease copiers and printers are overpaying on their leases and document cost by an average of 57%.
Recovering overcharges on expenses already paid. Over 70% of companies are overpaying on workers compensation insurance premiums. 3 out of 4 employers are overcharged by 5 to 15% and, in some cases, far more than that. It is possible to recover over-payments as far back as 6 years.
Increasing revenue. This can easily be accomplished by modernizing your Accounts Payable system to one that simplifies and consolidates all payments. This reduces costs and time, transforming accounts payable into a revenue-generating department. Many businesses are behind the improvement curve and are still issuing manual checks.
Check out the Expense Reduction page for more information
Making it happen
There are many options to improve profit in businesses. But what good will it do without people who have the influence to make it happen? Unfortunately, the real struggle to “making it happen” is the time constraint. Employees’ productivity and focus get sacrificed by the limitation, but identifying common workplace distractions and focusing on improving them will help. Each individual in the work environment is a piece of the puzzle to business success so it is important they are accountable to make it happen.
There are many potential ways to realize savings whether your business wants to tackle it in-house or outsource it.
The in-house option might utilize already available personnel but will delay getting immediate results since the personnel will be primarily focused on their day to day tasks. However, the outsourced option will add value by saving time and bringing visibility to blind spots with the right team of experts to obtain immediate savings and improve the bottom line. Many outsourced services that provide savings solutions work on a contingency basis.
Just imagine what your business could do with the extra money you will save! And if you are an employee, you could be adding savings to benefit your employer and not only impact your performance with your organization but save time as well.
Contact Us if you’d like more information about how to save more money to invest back into your business.