Keeping it really simple
Wednesday, October 10, 2018 at 10:00AM
Sticking to the manager’s knitting
Managers emerge from a variety of career paths — production, logistics, sales, marketing, or finance, sometimes admin. Others were there when it started; some are managers because they own it.
Your history informs your management style, but once in charge, you have to manage functions outside your own experience.
Two things in your favour
One is your role. You don’t have to deal with minutiae. You job is to look down from the helicopter and align all the pieces to produce the optimum result. You are there to apply the principles, not execute the practices.
The second is this: principles don’t change over time, place, product or industry.
Take pricing. It’s a variable in the most basic of business formulas: Price - Expenses = Profit. It’s flexible and easily adjusted. It determines revenues. It can even make a branding statement.
Price has massive leverage on profitability. If you produce a product for $9 and sell if for $10, your profit is $1 — a margin of 10%. If you raise the price by 10% to $11, your profit rises 100%, doubling to $2.
What if fewer people will pay the higher price?
Say they won’t and volume halves. If so, you may still be generating the same profit as before. You are just using fewer resources to do so. Therein lies a standard management issue. Do you get rid of the excess resources or use them to produce an additional product?
What if market share is an important KPI for your strategy. The basic equation still applies but the focus shifts to expenses. If you can reduce costs by one-ninth, to say, $8, your profit margin could still double to $2.
This basic principle throws up a range of options
Manage your customers. Encourage more people to pay a better price. Think premium offerings, inexpensive add-ons, subscription services, after-sales transactions, targeting additional market sectors or forming alliances with complementary products. A simple example is frequent flyer programs. They attract customers but are profit centres in their own right.
Manage your expenses. Regularly review your technology and your people. Some ideas are simple: shift suppliers or ask for discounts; task your people to find a 5% saving in their expense base; check you are renting the right space for the right price.
Others are more complex. Do internal systems reduce the customer-facing time? Do you need fewer people or different skill sets? You don’t have to be Amazon to benefit from digitised sales and logistics. Would a blockchain database and payments system make transactions easier for customers and cheaper to execute?
Manage your product mix. Avoid a ‘race to the bottom’. Focus on value rather than volume. Higher margin customers tend to be at the leading edge of their industry, especially in B2B. They pay more for reliability, clever solutions, brand image and convenience. When you examine your range from a margin perspective, it becomes obvious who you want to target. Have you got the products to do it?
None of these are radical suggestions. They simply arise from a deeper dive into the simple equation we started with. If you’re a manager, that’s your job.
Reader Comments (4)
We eventually junked our amazing sales management system because it took longer to update than make a sale. Our main KPI became customer contact. The result was not just more customers. They bought more from us as well.
Our loyalty cards simply make the tenth cup of coffee free. The margin on a latte is higher than in your example. We tried it with one outlet and the effect was obvious by the end of the month. We rolled it out to all outlets a few weeks later.
Your example is a good one but ours is even more simple. It's called customer service. It's our number one principle and we price ourselves just above market because of it.
Alan
Great post – enjoyed reading it.
Keeping things simple makes things easier to communicate to the team, for the team to execute and to measure and review progress.
It is the most fundamental thing we all struggle with - we often manifest our desire to add value as a leader through adding complexity of thought/measure.