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Most people look at their most recent week to see how they are doing in whatever aspect of their work that they are interested in. For a sales rep he may have a target of making 100 calls a week, of speaking with 25 decision makers. A Manager may be charged with meeting a profit expectation of $500,000 a month, or any number of other targets or benchmarks.

If that person has achieved their target they might be thinking that they are doing a good job. But is that really what they should be focused on? Let’s use our Manager as our example and they did indeed come in with a profit of $510,000 for the month and exceeded their target. But is that all there is say. If 2 months ago they had a profit of $520,000 and last month they did $515,000; clearly although they are above their benchmark they are trending down and if things don’t improve they may soon be below their target.

It is surprising that many people look at their last period without seeing if things are going up, down or sideways, but without seeing if there is a trend of what is happening, you can be focusing on a snapshot of things as opposed to the big picture. This can be done simply by saving the data week by week and creating a time series and graphing the data chronologically. With the simple example given here one does not need to do very much to see that things are deteriorating. But when there is a lot of data, the answer might not be so obvious. This can sometimes be discerned by using a regression or (best fit trend line) that is part of a spreadsheet subroutine like Excel. Often there is no clear trend at all. Lastly (and most interestingly), there may be micro trends; during one period things may go in one direct and in another one they may go in a completely different direction and you should look at the underlying reasons which caused things to change. This may be a challenge, but will give you a lot more information to act upon then just looking at a single slice of time.

To see all articles in this series please go to http://optimal-mgt.com/blog.

To start with, this situation is less likely to happen when dealing with a good client who would not typically want to alienate you, but there are always exceptions. This is more typical with prospects, especially mid sized ones. Smaller clients do this usually less often as it is difficult to waste lots of vendors time on small potatoes and large clients have an approved vendors list and go with those with a combination of low price and the ability to meet the specific requirements of their RFP (request for proposal). On the other hand you might even go into providing a bid to anyone if you believe that getting your foot in the door might pay off sooner or later.

But how do you smoke out those who are truly wasting your time? The first thing you want to look out for is the degree of interest in your services and questions about your company. Have you ever given them a quote in the past with no meaningful feedback? Are they asking you to just give them a price and want to know nothing else about your company or ability to deliver? Are they willing to meet with you to discuss you bid and terms of service? Is there anyone to speak with regarding the quote, assuming this is not a structured RFP?

If providing the prospect with a quote that takes no time at all this might still be OK. But if you are going to have to jump through hoops, waste a lot of time, resources and money you might just walk away from these wild duck chases before you find out you have been played. Going after new business is always a crap shoot, but the more experience you have the more likely you will be able to spot and walk away from phony business and spend your time on those quoting jobs that may actually pay off. .

To see all articles in this series please go to http://optimal-mgt.com/blog.

Are you focusing in on providing the least expensive product or service to your prospects and clients instead of providing them with a proposition that increases their profits at your expense? It’s very easy to cut your prices to meet the competition, or at lease what your customers tell you your competitors are charging. It is much harder to switch the topic to not what you may or may not be charging vis a vis the competition, to rather how much more money you can save your customer then some one else. This however takes sales skills as opposed to that of an order taker. Anyone can get an order by giving away the store, it takes a sales professional to understand the needs and requirements of the customer and provide that to them, so it becomes a win-win proposition where both entities can make money. It should not be in the interest of the customer to bankrupt one of their vendors, but rather increase their own profits, but all too often left to their own devises that is what they might accomplish. It is like the thoughtless fishermen who trolls the water for every last fish and wonders why there is no catch next year, or who does not make use of the by products of the catch that are not eaten.

If you are selling to procurement, whose only purpose is to get the lowest possible price regardless of the consequences to the rest of the organization, you might have tough times as they are rewarded at your expense. Your job is to find someone who understands the concept of maximizing their own profits instead of minimizing yours. This might be the CFO, COO, CEO or department head. It then becomes your job to find out where the inefficiencies, problems, bottleneck and other needs are that you can use your services to help your customer improve their performance, which may be more profitable to your client then if you just cut your prices.

To do this will require an understanding of how your customers operate, the problems they have and finding out how you can provide a solution that transcends price. No company operates flawlessly, it is your task to develop a relationship through sufficient credibility and knowledge on your part so that your customer will take you into their confidence so you can actually help them by doing something else then lowing your prices. There may be delivery, service or quality issues, guarantees, volume discounts, value added service, relationships you have with other vendors for integrated solutions, or dozens of needs both known to the customer or unknown that you can uncover for them that will allow you to increase their profit as hence your own. Remember people like to do business with people they like. Get them to bond and like you; share their problems with you and in turn you may be able to increase their bottom line.

To see all articles in this series please go to http://optimal-mgt.com/blog.

Did you know that you can translate what your staff does into how the company makes money? This can be done for any company in any line of business. This is called a profitability algorithm that converts staff productivity and efficiency values into sales and margin. With this in hand one only can subtract fixed cost and they can arrive at the company’s bottom line profit.

This information enables the company to focus in on which areas are performing well and which need improvement. Thus instead of trying to work everything, or guess where the problem is, one can zero in on those specific items where improvement is needed. In some cases there maybe tradeoffs that are needed to maximize results, such as sacrificing higher bill rates to get more volume, or reducing margin rates to get more order and a higher fill ratio. In all cases the idea is not to increase one item be it bill rates or margin rates, but rather to maximize margin $ and overall profit.

For example if a sales rep has 200 sales conversations a week that would be a productivity number, if out of those conversations they got 20 job orders that would be an efficiency value of 0.10, in turn if 4 of those orders resulted in a sale, that would be a 0.40 fill ratio. If those orders generated $200 each and the margin rate on those orders was 33%, then that sales person would generate $800 in sales and $264 in margin per week, or $1,056 in 4 week month. If there were 10 sales reps this would generate $10,560 in margin on sales of $32,000. If the company’s fixed cost was $9,000 this would result in a profit of $1,560 and a return on sales of some 5%.

With this information one can figure out the best structure an individual deal, create a profit plan that can explore the best option, set up a win-win commission plan for their rep, etc. Let’s take the example above. For example if sales calls increased by 5% and all other things remained constant, profit would increase to $2,616 from $1,560 or $1,056 or more then doubling profit. Alternatively, one could work on trade offs. If margins were reduced by 3% to become more competitive and fill ratios rose by 10% they would generate $3,400 in monthly profits vs. $1,560 or an increase of $1,840 or again increasing profits over 2 fold. This same concept could be applied to most any job function or process, designing a unique algorithm.

To see all articles in this series please go to http://optimal-mgt.com/blog.

Do you accept the proposition that all business is not necessarily good business? Do you so aggressively pursue new orders that you are not able walk away from a bad deal? If you sweep the streets you will invariable take orders your competitors did not want. In rare instances companies pursuing a predatory pricing strategy where they attempt to put competitors out of business, but if you are indeed a small to mid sized company this not a game that you should think about playing.

So let’s consider what might drive a company to go after all the business out there. They might want to grow which is a good idea, but taking business at a minimal or no profit is not the way to go unless for example you have lots of capital to finance your way to the point where you can make money this way, such as amortizing your fixed cost over a larger sale base or using LOSS LEADERS to penetrate a client and then increase your bill rate and margin rate.

If you don’t have such a MARKETING STRATEGY and are able to track your performance to make sure you are getting where you need to be, then exercise a more disciplined marketing approach. This would include determining: 1. Which jobs you can make money at given your current costs. 2. Which book of business you can negotiate a higher price at and only taking those. 3. Lowering your cost so that you can make a profit at the pricing levels you need to meet.

When you don’t have a well thought out and effective LOSS LEADER program, or can exercise one of these 3 MARKETING STRATEGIES to make money; then be prepared to walk away from this business. Many clients will try to find a vendor foolish enough to take business at a loss because they either do not know their cost, are desperate enough to take any business even if it is unprofitable to keep their staff busy, simply want to have a “big name” client on their books somehow hoping that the cache will bring in more profitable clients, etc. There competitors who can make money on business that you can’t do to their lower cost structure or other differences. Try negotiating a fair price before walking away from a bad deal. But when you can’t the best decision and looking for business that you can make a fair profit on. Know thyself and make your choices accordingly.

To see all articles in this series please go to http://optimal-mgt.com/blog.

Do you use checks and balances in your company to both insure accuracy and prevent embezzlement? In all well run companies management has installed this tool to insure everything important is both inspected by someone using cross referenced documents and that critical financial transactions are monitored by at least two different parties who do not report to each other. Yet it is surprising how many organizations do not follow these simple procedures. It is like not testing the lock on your door when leaving your house, just to make sure you turned the key before you leave.Let’s look at just a few simple examples.

Most all companies run monthly P&L’s as well as weekly sales and margin reports. But many have different systems that do not tie the weekly reports to the monthly P&L’s reports. Allowing for adjusted such as late journal entry, cash vs. accrual accounting, etc., these should be able to be cross referenced, but often do not leading to unreconciled variances. Sales and margin for the same period should have a check and balances. Often the staffing software back-office data do not tie to QuickBooks, or an outside payroll and billing service resulting in unexplained variances, booked as an “adjustment” which really does not confirm which values are in fact the correct numbers. We come across this situation surprisingly often.

Another type of check and balance looks for discrepancies that might be a result of malfeasance. Say that the A/P person creates a fake vendor and cuts a check to them for services or products that were never provided. That vendor may be working in collusion with the A/P and they both share in ill gotten gains. By having another person not working along side the A/P person check with the party receiving that service/product can insure against fraud when the department signs off those items as received and such embezzlement could dramatically reduced. We know of actual instance where this happened, in one case where restitution was made and in another jail time was served.

In a third situation, employees have downloaded privileged and confidential information and used it to either start their own business or used this to secure a new job. This could be spotted by IT tech people looking for suspicious files that have been downloaded on site or remotely. And there is software designed to track this kind of activity. Too assume that your employee handbook that notes that such acts are forbidden, are grounds for termination and will be prosecuted to the full extent of the law, will not usually dissuade unethical employees. As President Reagan once said in a different context, “trust but verify.”

To see all articles in this series please go to http://optimal-mgt.com/blog.

How do most companies grow? Some do it through the sheer determination of the CEO, coming up with a new innovation, meeting a need better then others, networking or marketing very well, but many do it by empowering their staff to accept responsibility to grow the company by doing their part. Needless to say one must start with a quality staff capable and motivated to find opportunities that the company can then capitalize on. Then as the company succeeds those who are involved in this process are properly rewarded.

I have personally found excellent innovative concepts coming from the equipment operators on the factory floor and the rank and file suggestion box.

This process starts with a CEO who encourages their staff to take chances and even make a few mistakes along the way as long as they are not too serious and they learn from their experiences. Those who stick their neck out with new ideas that do not succeed should not be discouraged and others will be encouraged to innovate. Successful companies such as Google actually give their employees 10% free time to experiment with new ideas. They have resulted in numerous new business beyond the search engine everything from Google Maps, Android to Google AdWords. Not every idea works, but the net financial contribution of the successes vastly outweigh the fails which have included such flops like Google Checkout and Froogle to Google Labs and the jury is still out on Google Glass.Here are a few of the principles that they have followed to achieve success:

1. Have a mission that matters.

2. Think big, but start small.

3. Strive for continual innovation, not instant perfection.

4. Look for ideas everywhere and 5. Spark with imagination, fuel with data.

Admittedly not every company can hire the best and brightest or even be in high tech to innovate and one might be amazed what good people can do given the right nurturing environment. Older companies such as Herman Miller, Target, Wal-Mart, Whole Foods and Payless have become leaders in their markets thanks to internal innovations. And whoever heard of Facebook or Alibababa when they were just started out?

To see all articles in this series please go to http://optimal-mgt.com/blog.

Do you have upward mobility in your organization? Most everyone wants to do their job well and learn from their experience so that they can move ahead in the company. The question is do you have such a climate in your company for someone to get ahead, or do they have to leave and go somewhere else to advance their career?

Most large well run organizations have a formal career path that is well laid out by HR. Those people who have advancement potential are given new tasks to broaden themselves with progressively increases in their responsibility. This path can be in a management position or a senior technical position. This is called the dual ladder concept.

In many small to mid sized companies one has to fend for themselves and find a way to advance on their own and there is no helping hand to guide them. They learn as much as they can and go elsewhere to get to the next rung in the ladder. This is indeed unfortunate as the company has lost the investment they made in that person often because they are simply looking if that person is paying for themselves instead of how much more they could do for the company with guidance. Planning for personal growth does not happen by accident, it takes a dedicated effort and involves a well orchestrated approach including a variety of issues from: funding and resources, to training and continuing education, mentoring and cross training, providing financial incentives and perks, chemistry and organizational issues, building bench strength and hiring trainees, just to name a few.

Well managed companies devote 20% or more of their time to figuring out how they will improve their various tiers in the organization. Those that do not do this find themselves continuing to lose their best people to the competition. Succession planning is a never ending process and no one keeps, or wants to retain all of their people as one wants new ideas to be coming through. The more dynamic a company and the more competitive the environment they are in the more effort they need to devote to this process.

We welcome your questions as to the challenges you face in order to grow.

To see all articles in this series please go to http://optimal-mgt.com/blog.

Do you set goals for yourself and others; better yet do you set stretch goals and standards for productivity and efficiency? It is a well known fact that most people strive to attain things if there is a reward in it for them. If there is no reason to exert oneself they will be satisfied to level out at some middling of performance and not push themselves beyond their comfort zone. And everyone’s comfort zone is different. Some people just want to earn enough to pay their rent or do just enough not to get fired. But fortunately most people want to do more then to just survive and actually have a dream be it getting a larger apartment or buying a home, or being promoted instead of avoiding being fired. They are looking for job satisfaction, recognition, competitive instinct, or more money. People usually respond really well to more money. This is the concept of striving and having stretch goals vs. being complacent.

Let’s consider a business developer. This person should not be complacent; they are typically results oriented and strive for success and higher earnings. If they do not have these traits they might be better suited as an order taker or processor. As someone who is financially motivated the higher one sets their goal the more they will strive to achieve them and if they don’t fully achieve them they will at least earn more then if they did not stretch to almost reach them.

Let’s assume that a person’s earnings were tied to gross profit (GP) and their norm generating $1,000,000 in GP at a 2% commission rate, or $20,000 incentive. To encourage them to produce more a sliding commission was put in place where each additional $500,000 in GP would earn an additional 1%. Thus, if their GP rose to $1,500,000 they would earn $25,000 in commission and if their GP rose to $2,000,000 their commission would rise to $55,000. Doubling their GP would net then $35,000 more. If we did not have such a sliding scale they would have earned $40,000 in commission. Interestingly, the blended commission rate on $2,000,000 in GP would only increase from 2.0% to 2.8%. A driven person would still try to produce more, but may or may not work quite so hard if there was a greater premium placed upon doubling his performance. He might even look for a higher commission elsewhere and the company should realize that this person might just be worth the additional payout and this would be a win-win situation for them and the company.

Stretch goals not only work but are self compensating, no increase in GP, no increase in commission. A stretch goal plus a sliding commission scale can motivate driven people to run the extra mile. Clearly the economics must be cost justified when creating any such plan.

We welcome your questions as to the challenges you face in order to grow.

To see all articles in this series please go to http://optimal-mgt.com/blog.

How many times have you said that competing on price is a fool’s errand and you need to find a way to break your clients mind set that it’s all about competitive pricing? Well there are many ways to break this cycle. One of them is providing value added services to your clients and prospects.