Part 67: Motivational Targets – How Small & Mid Sized Companies Grow

Do you create different goals as well as a budget or profit plan to run your company? Most people run more then one set of projections to manage their company, each with a different purpose. There is the official business plan or budget that the company sets as it’s what it can count on in terms of sales, margins, fixed cost, profit, cash flow, borrowings, etc. Then there is a conservative forecast which is often what it gives to the bank and investors. This is generally somewhat more conservative projections so that the stakeholders will not likely be disappointed.

Then there are motivate employees to produce more then what the budget calls for and if these values are achieved the staff in turn gets a greater financial rewards and perks. Motivational targets provide a win-win scenario for both the staff and the company. Here is an example of how these three budgets can work.

The “official” budget may call for a 7% increase in sales which may be the company’s average gain in performance over the recent past assuming that no risks or major changes are on the horizon. A business plan would be built on this forecast. The conservative budget may project a 5% growth which therefore should be a safe bet and a positive surprise would be likely.

Here is an example of the impact of motivational targets for a company with a 5% ROS. Sales are targeted to rise 10% instead of 7% (with a provision for financing this growth) with a 12% improvement in margins (from a 20% base), with 9% higher fixed costs (5% excluding commissions) which would result in a 20% higher profit. The staff responsible for generating higher sales and margins would receive get 12% commission vs. 10% official budget, translating to a 34% increase in their commission $, plus perks such as an award trip. Motivational targets would be supported by a detailed profit improvement program, where everyone determines what they have to do to insure achieving these results. A metrics and monitoring system would typically put into place to keep track of their progress. Achieving thee targets would benefit the staff and stakeholders alike.

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