Plan for Profit, or Plan for Loss
THE LAWS OF PROFIT
"Plan for Profit, or Plan for Loss"...The First Law of Profits
2. Profit Plans are Created Cross-Functionally
If your profit planning isn’t cross functional, it is dysfunctional. Profit is impacted by every activity in the company.
3. Profit is Budgeted
Profit is the first line of expense, and is therefore taken off the top.
4. Profit is Created Daily
Allocate profit daily as a percentage of Dollars earned. Profit is earned incrementally with each sale.
5. Set Profit Targets – not Sales Targets
Price for profit goals and not sales goals because sales targets are suboptimal. Profit targets align activities with results.
6. Profit is NOT Your Salary
The business owner has two revenue streams in the form of salary, and owner compensation.
7. Selling at Cost Loses Profits
Selling at Cost LOSES Profits because it cannibalizes resources designed to make profit
8. “Loss leaders” Lose Profits
Loss leaders utilize resources designed for profit and can rarely be controlled by the purchasing habits of the customer.
9. Employee Competence Increases Profits
If critical positions lack competence, outsource them. If you cannot get the best person for the job, get the most committed.
10. Empower Front-Line Employees
The faster employees are empowered, the faster customer lifetime value is created and extended.
11. Extract Profits From Employee Assets
Employees are strategic assets with intimate product and customer knowledge. Leverage them.
12. Use the Government as a Profit Partner
Let the government help you. Not using the government proactively can leave money on the table.
13. Extracting Profits is THE Standard Operating Procedure
Create the Profit habit. Pay yourself first.
14. Profit is a Consciousness
Active Profit Consciousness is a state of being, not an activity. Continuously capitalize on new opportunities.
15. Profit Results from Focused Activity
Activity doesn’t equal accomplishment. If it isn’t important to do, it is important NOT to do.
16. Learn and Execute
Perfectionism is the enemy of profitability. Execute learnings immediately. Measure the results, modify and repeat until the desired level of performance is achieved.
17. Learn to say ‘NO’
Don’t do what you don’t do. Don’t jeopardize the enterprise without doing your homework.
18. Owner Ego Can Destroy Profits
Lose the ego, gain the profit
19. Dollar Utility Impacts Profit Behavior
Purchase items whose utility contributes to the highest profit dollar.
20. Anything for Sale Competes for Profits
A dollar can only be spent once.
21. Business Risk is Rewarded Through Profits
Profit is taken out of the business as a reward for the successful undertaking of risk.
22. If You Don’t Know the Customer, You Don’t Know How to Profit
Deeper customer relationships increase profitability. Know your customer.
23. Know Your Lifetime Customer Value
Know the value of your customer and strive to increase it.
24. The ‘Right’ Customer is Always Right
Don’t sell to people who are not your customer. They carry potential losses.
25. Customer Dialogue Enables Profits
Engage in ongoing communication with your customers, and always ask them what they want.
26. Enhance Profits by Selling to Buyers’ Habits
Understand your customers’ natural buying habits and behaviors and make it easy for them buy.
27. Fire Profit Losing ‘Customers’
Service your customers, refer your abusers.
28. Profits are Cash
Profits only come in the form of cash. Cash control equals profit control.
29. The Best Cash Cycle is Negative
Integrate prepayment strategies to maximize control and profitability.
30. The Best Receivables are NO Receivables
Receivables cannot be spent and increase risk. They are liabilities in disguise. Profits aren’t realized until paid AND you don’t have possession of the asset.
31. Profit is Only Recognized by Throughput
No throughput, no profit. Optimizing throughput reduces time and waste, further increasing profitability.
32. Use Compound Interest to Increase Profits
“Compound interest is the eighth wonder of the world. He who understands it, earns it... he who doesn't ... pays it.” –Albert Einstein
33. Only Invest in Profit-Continuum Activities
Building infrastructure to solely manage returns creates Loss Centers and destroys profits. Only sell what the customer truly wants.
34. Don’t Buy if You Can Lease
Don’t buy an asset to increase your profits – leasing them is better. Ownership is not required for asset control.
35. Use Sale–Leasebacks to Free Cash and Profits
Use sale – leasebacks to improve cash position.
36. Increase Profits with Joint Ventures
Strategically use Joint Ventures to increase potential profit opportunities.
37. The Best Expenses is NO Expense
Don’t buy what isn’t needed. Purchase items integral to the profit continuum for immediate profit impacts. Non-targeted spending hinders exploiting other opportunities.
38. Never Pay More than Necessary
Reduce costs with negotiation, discounts and reduction of discretionary spending. Every dollar paid that is more than necessary comes directly from profits.
39. Eliminate Profit Destroying Activities
Only cut costs which lose money, and are not on the profit continuum and eliminate pyrrhic sales.
Waste reduction equals profit enhancement.
40. Increased Fixed Cost Productivity Increases Profitability
Increasing profits leverages fixed costs for more profitability.
41. Increasing Efficiency Does Not Guarantee Increased Profits
Lowering variable production costs requires matching capacity with demand to recognize increased profitability.
42. Control Your Costs or they will Control You
Create, use and enforce standard operating procedures. Dollar waste comes from profits and time which cannot be recovered. Lost profits and time are permanent.
43. Product Returns Destroy Profits
Do not sell anything that has a high probability of being returned. Returns take your money out of circulation and out of profit making activities.
44. Don’t let Opportunity Costs - Cost Opportunities
Every opportunity has a cost. Measure them objectively to know their profit impact.
45. Always Price for Profit
Every sales receipt must contain Profit. If not, it contributes to loss.
46. Sell on Price, Die by Price
Selling on Price denies you of any other marketing opportunity which adds to profitability, and because of the lower margins, increases the risk of insolvency.
47. Profits are Born in Contribution Margins
ALL profits are managed through contribution margin. Know and manage them.
48. Manage Conversions for Profit
You cannot improve a plan which is not managed through measurement. Manage the Sales Conversion PLAN.
49. Buyers’ Behavior Identifies the Target Market
You have no business if you have no market. Identify them by their habits.
50. Increase Average Sales Amount to Increase Profits
Continually endeavor to tactically increase each sales receipt.
51. Increase Purchase Frequency to Increase Profits
Create the ‘why’ for your customers to buy more often, and communicate it to them.
52. Manage Productivity and Efficiency For Increased Profits
It is critical to know WHERE, WHY and HOW profits can be controlled and improved, therefore Productivity and Efficiency must be continuously measured.
53. Profit is Controlled by Active Management of the Profit Drivers
The Profit Drivers are the foundation of Profit Planning and must be managed.
54. Control Profits With Systemization and Automation
Enable profit control by using systemization and automation. Systemization and automation enables process integrity.
55. Defined Job Standards Enable Profit Control
Create and enforce employee roles and responsibilities. Set expectations of performance with clear communication and SOPs.
56 .Continually Benchmark Your Profitability
Always benchmark everything. Continuous improvement starts with benchmarking to know where you are, to chart the path to profitability.
57. Increase Profits Using the Scientific Method
The scientific method provides the process for profit optimization. The process shortens the time to profitability and directs tactical activity.
58. Manage Profits With Continued Measurement
You cannot control what you do not measure, you cannot improve what you do not control.
59. Higher Quality Results in Higher Profits
Higher quality lowers costs, increases pricing power and profits.
60. Increase Profit Control by Increasing Fixed Revenues
Create fixed revenue programs to increase fixed profits by knowing and exploiting your customers’ habits.
61. Scarcity Leverages Profitability
Use the scarcity effect when optimizing product mix in planning for profit DOLLARS.
62. Use Unfair Advantages to Create Profit
Use unfair advantages to create more profit opportunities. Actively manage customer perception by using strategic competitive advantages.
63. Use Leverage to Scale Profits
Once costs are controlled and profit established, scale operations with leverage.
"Terrific book. It covers several dozen "laws of profit" complete with violation level at the end of each one. The author is not afraid ot challenge the status quo in a very compelling manner. This could serve as a solid checklist for profit seeking businesses to make sure they are maximizing profits." -Kyle H.