Profitability doesn’t happen by chance. Business owners must track products and services, follow metrics, and systemize successes to achieve and maintain profitability.
This is something that Adi Klevit of Business Success Consulting Group and Brooke Lively, CEO of Cathedral Capital, discussed in a recent episode of the Systems Simplified podcast. Both CEOS shared how business owners can use systems to better understand their financials, improve profitability, and identify inefficiencies before they become costly problems.
Read on to find five strategies that you can apply to your business.
How to Use Systems to Monitor Profitability and Prevent Waste
1. Map Out the Financial Interconnections in Your Business
Every department affects your bottom line. Sales, marketing, operations, and HR all play a role in driving (or draining) profitability. A systemized approach to financial oversight requires you to understand how changes in one area will impact another.
Ask yourself which parts of your business affect the rest. For example, if you increase delivery, will your HR department need to ramp up staffing efforts? Are there automations in place that can offset the cost of additional employees? How many services must be sold annually to ensure you can afford the additional staff? If your team is in-office, will increased staffing allow everyone to remain in-office, or is it time to let go of your lease and convert to a work-from-home model?
Because there are many financial interconnections, there are also many solutions that can be implemented when making difficult decisions. Documenting processes and ensuring all interconnections are mapped out and represented during the process documentation will help you make educated decisions rather than guesses.
2. Evaluate Offerings for Profitability
While all business owners know that not all revenue is profit, it can still be difficult to let go of an unprofitable but revenue-producing product or service. Evaluating the profit margin for a product or service, comparing profitability across offerings, price adjustments, and even eliminating products/services all steer the business toward profitability.
However, it can be difficult to tackle this task. Establishing a review system for your offerings simplifies the process and ensures you’re building your business around what truly drives profit.
3. Track and Improve Collections
Poor collection practices can wipe out your profits even if your business generates strong revenue.
For example, it’s well-known that legal cases cost quite a bit of money, but most law firms actually only collect 75–85% of what they bill. That means they are paying lawyers to work for free one day a week. This may be considered a loss leader for some firms that provide pro bono work. But if they aren’t planning to go pro bono or they work on tight margins, this could spell the end to their profitability.
Systemization in the accounting department is essential. Take time to document processes for:
- Invoicing and follow-up,
- Reviewing aging receivables, and
- Structuring contracts and payment terms to support timely collection.
If your team follows a standardized collections process, you can catch problems early and reduce revenue leakage.
4. Use Marketing and Sales Data to Reallocate Resources
Not all leads are created equal. If your team is chasing leads from a channel that consistently fails to convert, you’re wasting time and money.
Build systems to evaluate lead quality and ROI by source. This will allow you to:
- Redirect marketing spend to higher-performing channels,
- Reduce sales team inefficiencies, and
- Optimize the balance between lead volume and lead quality.
Analyzing marketing and sales data must be done regularly. Fortunately, you can set up a review process to regularly evaluate metrics to ensure your past decisions provide future benefits.
5. Build in Accountability to Maintain Momentum
Discovering opportunities to improve profitability is one thing, but ensuring the necessary changes are implemented is another. This is where accountability systems come into play.
Here are four steps you can take once you’ve identified an area where a change needs to be made:
- Document new procedures,
- Assign responsibility,
- Follow up with regular check-ins or scorecards, and
- Track implementation and outcomes.
Remember, accountability doesn’t have to be a severe system. It can look like implementing production games and bonuses, along with building an encouraging atmosphere in your business. You set the tone and create the culture around accountability.
The Business Success Consulting Group team helps companies create the systems they need to run operations and provide deliverables efficiently. All systems are interconnected, and we help you identify those connections and make them stronger and more viable so you can stop using guesswork as you scale your business. Get in touch today if you are ready to build systems and create greater efficiency in your business!
