Reducing Drag Increases Profits


Do you ever feel as though you and your profits are being dragged down by inefficient processes? I do. With a new location opening soon we have been thinking a lot about new service offerings, how to price them and how to complete them efficiently to maximize profit while maintaining quality.  There are several types of drag psychological, physical and systematic that all reduce profits, employee motivation and productivity.

Figuring out what best prices are reflects the value the services provide as well as how much time it takes to provide the service. Measuring profitability is usually done with a break-even analysis and a contribution to margin, however one way we have been thinking about it also what resources (variable expenses) including provider time each service uses.


Reducing Systematic Drag to Increase Profits

We have never priced based on time, but more on value. Our focus is to provide more value to our clients by leveraging our time effectively. It became very apparent recently  that even though our billing rate for one service is high, it still takes  an enormous amount of time that could be used to provide other services to more clients.


 I spent about four hours trying to format a report versus the one hour it should have taken to simply review it, sign-off on it and then send it. This still didn’t account for the additional time it took our staff to create the report which was much longer than it should or could have been.  Entrepreneurs are meant to be creating business rather than working soley in the business. 

How to Reduce Completion Time While Maintaining Quality

Systematic drag occurs when processes have extra steps, steps that take too long or steps which eat up valuable resources. Like those of the business owner.  Entrepreneurs rarely account for their time in financial terms. If my billable hours are at $80 per, then 4 hours is $320.  There goes nearly half of our profit on that service.

Another area I noticed that reports were taking too long was that our template was very slow to edit, which forces staff to first write in a basic word document then cut and paste with the final step of me going through it and editing it. This template was also not allowing us to create documents larger than three pages.  Writing reports quickly become onorous and staff become unmotivated (including myself).

As leaders of organizations it is our role to reduce the amount of drag in our business so that our employees and our profits benefit.  This weekend I decided to stop being scared of MS Word templates and make a project of creating templates for us to use which was easy do and cost effective. We are now able to write directly into these templates which also create multiple pages. This investment of a few hours is going to pay off big dividends in the future.

In my example by saving 3 hours, we increase profits by $240 on that service alone. This also frees up an additional 3 hours to focus on other revenue generating activities like meeting with referral sources.  As well, these templates make it easier for our staff to complete the activity, thus reducing the time to completion so that they can book other clients in the newly freed time.  


Simply put:

If you charge $100 per service and it takes 2 hours to complete you are billing $50 per hour.
If you pay someone $50 to complete it then they are earning $25 per hour and so is the business.
Reducing the time to completion by 1 hour means that you now earn $50 for the first hour and have capacity in the second hour to earn another $50, thus doubling both your profits and the income of the employee.


Now multiply that by the number of times you provide the service over the year. That is your net increase profits.


Resources

How to create a custom  letterhead template in word – click here.

To make it fully functional ensure that you also save a custom style with your brand colours and fonts that applies to all documents created with the template.


Can you think of any other ways to increase efficiencies?
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