Are you profitable? That is the question. For most leaders, at a basic level profit means that there revenue covers their expenses with some dollars left over. Pretty basic. The idea of creating metrics based on profit is not as basic.
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When we dig into profitability, some questions deserve exploring.

• Are your expenses valid?
• Are your salaries or hourly rates what they should be and are they appropriately allocated? This question is especially necessary for generational family businesses.
• How satisfied are you with your COGS?
• Do you understand Gross Profit versus Operating Profit versus Net Profit Margin?

Digging into these questions will undoubtedly create additional assessments.

To truly understand profitability, you will need to dig into your current COGS calculation. There is no reason to tie metrics to gross profit if you aren’t sure that your COGS is accurate. While you may be thinking, “we better know that” there are reasons why your COGS may not be correct. Ultimately it may come from:

• Inaccurate Reporting of Labor
• Erroneous Reporting of Expenses
• Incorrect Inventory Costs
• Lack of understanding of how a “task” is associated with an item or service sold (this is part of determining Operating Profit, which = Gross Profit – (Operating Costs, Including Selling and Administrative Expenses)

If you are pretty confident that your COGS and operating costs are accurate and allocated adequately, then you can use Gross Profit or even Operating Profit as a critical metric.

However, most of us need to dive into the above bullet points to create metrics that drive true profitability. This digging is where the rubber meets the road.

Let’s look at four leadership discussion points that you may be able to use to create meaningful KPI’s (that drive profitability). 

• Validate your data and update your technology. For many companies, especially those manufacturing or distributing products, inaccurate reporting is the result of living in a spreadsheet nightmare, or with a homegrown system. Bad data and outdated technology lead to inventory mismanagement and improper COGS calculations. If this is you, it may be time to consider a new ERP system. Focusing on your data accuracy combined with the selection and adoption of new technology can dramatically improve your decision making. The better your data, the better your results. If you can’t get two years of data quickly – it’s time to upgrade. 

 

• Competitive Analysis. It may be time to get to know your competitors. What are they charging? If they aren’t charging more- is there a way to explore how they may be creating a similar output with fewer expenses? Build leadership KPI’s on exploring the competitive landscape and implementing what you learn. 

 

• Reduce Expenses and report them accurately. I’ve seen change leadership put into place for nothing more than finding ways to reduce costs. Task your leadership team by looking at their departments and bringing potential waste to the table with lean and six sigma. This process usually involves decisions like outsourcing areas where you are weak and re-evaluating any complex expenses. The sales process is always an excellent place to start. Tie KPI’s to expense knowledge and reduction. 

 

• Focus on profit by segment. This type of focus can engage your segment leaders. Please encourage them to compete healthily and build the understanding of profit by segment into their KPI’s. When you segment your business by product or service lines to find out which areas of your business have the best revenue and net income – you begin to use your data for decision making. Healthy companies rarely keep divisions because they’ve always had them. If salaries make up a big part of overhead, you can allocate them based on how much time they spend on each segment.

There’s no doubt that building metrics and, or KPI’s based on driving profitability benefits everyone in an organization. However, starting or finding time for these problematic leadership conversations can be a monumental task. Having an outside professional drive the discussions can take off the internal pressure. 

Ready to start the conversations? Get in touch today at doug.hershey@thoughtiq.com​.

As a business owner/operator, you do your best to please your customers, satisfy their needs, and take steps to keep them loyal to your brand. However, how can you be sure that your efforts bring desired results? What are you doing to interact with them to gain the information you need to make intelligent decisions? Your clients experience with your brand and organization isn't something you should be guessing. Their opinions about the experience of your brand are invaluable. This information can help you to analyze and adjust your business practices. Don't leave customer feedback out of the equation.

There are a multitude of ways to leverage customer feedback, but first, let's explore how to collect that feedback and how to utilize the information once it's in your hands.

Having reliable customer satisfaction data is a crucial component in being able to address customer retention, evaluate your team's customer service efforts, improve products and services, and review other vital areas. Let's see how we can understand your customers journey through interacting with your products, services, and relationship management processes.What is customer feedback?
Top performing companies understand the role customer feedback plays in their business and strategies. So, what exactly is customer feedback? It's information regarding clients satisfaction or dissatisfaction with your products, services, and overall experience they have had with your company. Their feedback is data for improving customer experience and adjusting your planning and ultimate actions to their needs. This information is collected using surveys or direct communications (prompted feedback). 
You can also find opinions and reviews that your clients post online, utilize internet monitoring tools to understand user activity. (unprompted feedback) A combination of these and other methods are essential components in seeing the big picture of how your clients perceive your brand. Let's break it down a bit and focus in on some core reasons why you should be getting feedback from your customers:

• Customer feedback helps improve products and services

When you launch a new product, brand, or service to market, you probably have an idea about customer needs. You have more than likely conducted some market research that provided a snapshot of what potential customers would be willing to pay, as well as ways to ramp up or customize your goods or services to meet needs. Only after customers use your product or service can you uncover tangible successes, flaws, and can track and note their experience, aka the customer journey.
After that initial launch, needs and expectations will evolve with time. You can have the best widget in the industry, but this expertise will never be more valuable than customer insights. Keeping your eye on your customer's experience will serve you.

• Customer feedback helps you measure satisfaction

Customer satisfaction and loyalty gives insight into a company's financial performance. When broken down, it is directly linked to market share and higher (or lower!) revenue. 
There is a direct correlation between customer satisfaction and business performance. 
If you want to know you need to ask! A simple survey can reap many benefits! An accurate method to measure, manage, and improve customer satisfaction is determining your NPS (Net Promoter Score). This metric includes a straightforward question - "How likely are you to recommend us to a friend?"
A good time to ask this is after they purchase or when they contact customer service.
To do this effectively, you need a Net Promoter Score questionnaire or process and a scoring scale.
If you are using a scale of 1-10, then those that respond with a 9 or 10 are promoters, a 7-8 are passives, and a 0-6 are detractors.
Once you have your responses, you can add up your "promoters," "passives," and "detractors." For the NPS score – you subtract your detractors from your promoters. If 85 people responded and you had 60 promoters, 15 passives and 10 detractors, approximately 70% are promoters, 18% are passive, and 12% are detractors. When you subtract your detractors from your promoters, you get your NPS% of 58%. In this case your NPS = 58, which would be excellent. Some tools can calculate this for you – but it all starts with an excellent customer survey process.

• Collecting customer feedback shows how much you value their opinions

Reaching out to your clients for feedback communicates that their opinion matters to you. 
When you include them while shaping your business, they feel more connected to your company. Listening to their feedback helps you create stronger ties with them, and they with you. This engagement is the best way to gain valuable brand ambassadors who will spread positive word-of-mouth for you, which is a priceless commodity.

• Customer feedback helps you create the best customer experience in your vertical

Today's marketing requires creating a personal experience for individuals with your products, services, and brands. Keeping the focus on providing the best customer experience at every touch-point establishes brand loyalty. Moreover, the most effective way to give them a fantastic experience is by asking them what they like about your service and what should be improved.

• Customer feedback helps to improve customer retention

When you understand your customers level of satisfaction, you can intelligently evaluate the service you provide and uncover any areas that may need improvement. Hearing some negative commentary? Use it as an opportunity to address issues head-on! Keeping the flow of information keeps you in tune and on top of your game.

• Customer feedback is a reliable source for information to other consumers

Social media and the internet have paved the way consumers interact with brands. 
According to Inc. contributing writer, Craig Bloem, Research shows (click here to check out the numbers) that "91 percent of people regularly or occasionally read online reviews, and 84 percent trust online reviews as much as a personal recommendation. Opinions provided by other customers who have already used a product or service carry much weight!" 
Do you incorporate a review system into your strategy? 

Putting your buyers at the core of your business model and treating their feedback as a valuable source of data for decision making should be a crucial part of your overall strategy.  
Their pleasure in your service is your success, so give them a voice at the table and listen carefully! 

For a personal evaluation of how your organization can better utilize leadership tools, such as customer feedback, contact me today. ​