How to Find the Lost Profit Hiding in Your Business

Everyone from the CEO of a Fortune 500 company to an entrepreneur to a high school kid with a part time job can testify that there are many ways businesses lose profits. But the challenge for the business owner or the manager leading a team is to figure out where to look for that lost profit potential.

Sure, you know you can either increase revenue or cut costs, but that doesn’t offer much practical help. I recently met with my team of managers to talk about where to look for opportunities to increase profitability. I focused on the expense side of the profit equation since every department can do its part to run efficiently.

Here’s how to get started finding that lost profit.

How does it scale?

Some expenses are relatively fixed. For some companies, rent and utilities are relatively fixed, that is, they don’t go up or down as the volume of business goes up and down, at least within a certain range.

So think about cost savings that will scale. In the case of my company, we print and ship high quality custom stickers. A small reduction in material costs or in material waste can have a huge impact over time.

What’s the maximum possible impact

For example, health insurance costs are high and pretty rapidly increasing. You might be dissatisfied with your plan or provider. Before you go down the rabbit hole of shopping for health insurance, take one minute to calculate how much you’d save in a best case scenario. Maybe if you got lucky you could save 30% on your health insurance costs. Who knows. But that’s what I’d use as an upper limit. So do the math and see what you could possibly save.

Once you have that number, you can determine whether it’s worth the time to try to get a better price.

Has it been a long time since anyone thought about it?

There’s only so much that can be re-evaluated constantly, so it’s understandable that this happens. But in my experience, this is the most significant indicator that you should take a closer look.

What made sense to do 5 years ago might not make sense anymore. Things change. For example, the USPS changed the weight limit for commercial First Class Parcel mail from 13 ounces to under 16 ounces. That means shippers can use First Class instead of Priority Mail and save some money.

In our case, some time passed before we realized this change. We were using Priority Mail when the less expensive and virtually just as fast First Class Mail was an option. Doh!

Other Factors to Consider

How will this affect morale?

Will this impact quality?

Will you actually realize the savings?

But hold on. If you implement that change, will you actually reduce that employee’s work time by 15 minutes per day? Will you pay that employee $1,500 less this year? No? Hmm. Then what are you saving?

Perhaps once you grow, you’ll be able to delay hiring a second employee because the first one is a bit more efficient. In the long-run you could realize some savings, but in the short-term, you might not.

Try it out

I can’t promise you’ll realize any savings by doing this, but say hi on Twitter.

Educational Psychology Ph.D., business analytics nerd, computer scientist, President @MakeStickers