Is Your Business Leaking Profits?

The word leak has a negative connotation.

A leak in a tire isn’t a good thing. A leak in your water heater isn’t good. A leak in your business could drain away the last of your reserves.
I work for large and small businesses that want to improve. When I get the call, we almost always talk about something management wants to make ‘better’. That’s smart and I support that thinking but before things can get better it is necessary to stop the leaks.
Going back to my leaky tire example, you can make the air pressure ‘better’ by adding air but unless you fix the leak, you will end up back where you started. Time and resources are wasted when we try to make things ‘better’ before we fix the leaks.
When I take a new client, I start by looking for leaks. If a client says, “we need to improve margins,” I look for what is draining margins before I look for ways to increase margins. For example, raising prices should immediately increase margins. But if shrinking margins are a result of sales inefficiencies, price rises will be consumed by those same inefficiencies.We have to repair the leak first.
Let’s look at something specific. Let’s say there is product price timidity at your company. That’s when management and sales people fear competition. More than necessary is spent on advertising that doesn’t produce measurable sales gains. Big money is spent on trade-shows more because of a feeling of obligation, “we have to be there”, rather than to build the brand in a measurable way. Samples are generously distributed to sustain sales rather than build measurable loyalty and increase market share.
What do all these have in common? They can be measured. Leaks are detected by measuring. Leaks continue from a lack of taking measurements. If giving away samples doesn’t lead to increased sales, those free samples are hurting margins.
I’ve had a little coffee business for 25 years. It’s mostly for fun and it allows me an outlet for charitable activity. When I first started, I wanted to flood the local market with samples. A wise sage of the coffee industry told me that samples will not lead to sales in the coffee business. I didn’t believe him until I wasted a few thousand dollars giving away samples that did not lead to sales. That was a leak.
So far I’ve focused this piece only on sales. This same thinking applies to every aspect of a business. Manufacturing costs too high? Start by looking for waste and then go to cost control. Employee retention lousy? Before implementing costly incentives, look for the leak first. Where are your people going and why are they going there? I know of at least one case where the people feel their career is at a dead end. It’s not a lack of money as much as a lack of opportunity that causes employees to leave. (Are promotions based on relationships rather than performance?)
Before starting a big sexy program to improve business, fix the leaks first. You’ll see results quicker. Your betterment program will produce better results after the leaks are plugged.
Let me leave you with a tip. To determine if you have a leak, ask yourself if everything you try seems to fall flat without making things ‘better’. You’ve got a leak. Fix it. Leaks waste time, energy and resources.
Chris Reich, Business Adviser