Are You Building Sales, Profits or Company Value?

76755013 (1)We are always striving to grow, but grow what? There is a big difference between building sales, profits and company value. They may all be integrated, but they need not be. Let’s take the airline industry. For decades they were chasing market share and adding capacity and meeting every low price to become No. 1.

A funny thing happened on their way through bankruptcy and failure or reorganization. They realized that building sales by adding more capacity was not the most import thing and that building profit was more important. And if one continued to grow profits, their stock would increase and the value of their company would rise, building value. Today the industry operates at an 87.1 percent capacity level and stock prices and company values have never been so high, as they have finally got religion. AMR, the parent of American Airlines, for example, went from the brink of chapter 11 to some $350 million in profits in July.

So what can we learn about this in the world of staffing. Stop chasing profitless sales for one thing to keep business that is not worth it or penetrating a new client when all you have to show for it is only top line growth. A client that just increases your sales and accounts receivable is not worth it and the promise of getting higher bill rates after you have proven yourself is rarely realized. Anyone can give away the store, but it takes a business person to make money at it.

So how do you take profitable business and increase the value of your company? It starts with a value proposition. That is how you can save your client money while increasing your profit and value at the same time? You can do this by finding out how they staff their operation and what you can do to improve their bottom line. A good business person will find this out and negotiate a deal based on the cost saving they can deliver without just dropping their price. Here is an example. Every person has an economic value or they would not be needed, if you person can do the job faster, better, with less downtime or disruptions you can quantify these savings to the client and be able to create a win-win scenario. An L/I temp who is properly trained and shows up on time will increase production. This will result higher output, less scrap and returned goods. All of which can be quantified. A top draw IT programmer will be able to code faster, with fewer errors resulting in getting the software out the door sooner, which will again yield the company greater sales and profits. In both cases the key is to document these saving to the client in order for you to get credit for it and justify a reasonable price and hence increased value of your company in the long run.

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The key to making this happen is dealing with someone with P&L responsibility be they the CFO or the department manager whose job and bonus is tied to increased profitability as opposed to HR and procurement and only cares about the lowest price they can get regardless of the financial impact it may have on their company, as negotiating the lowest is their only job. The good business person will try to bring into the decision making process those stakeholders who will become your ally, pushing back on unreasonable pricing that they and the company will suffer for with short sighted decisions. And when this does not work, walk away from a bad deal.

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Michael Neidle

Michael Neidle
Michael Neidle is president and CEO of Optimal Management, an advisor to staffing firm owners and managers.

Michael Neidle

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