Over the last 30 years as I’ve consulted with businesses around the country, I’ve come to realize that the majority of employees, managers, executives, and business owners think that every new dollar is of equal value to a company. This is not the case because the money produced through unanticipated cost reductions is actually more valuable to a company than the revenue produced through ordinary sales.
The differences between found—or unexpected—dollars and traditional or expected sales are clear. Unexpected dollars are added directly to bottom-line profit. Typical sales dollars are loaded with overhead such as commissions, costs of goods sold, and general and administrative expenses. In other words: If a salesperson makes quota, it’s expected, but if a non-salesperson discovers hidden money, it’s a windfall.
Find your company’s profit margin to determine the amount of sales needed to produce $25,000 in profit. As an example, if your company’s net profit margin is 5%, it would take a $500,000 sale to yield the same $25,000 in profit that you can create with a $25,000 cost-saving idea. The narrower the profit margin, the more valuable your contribution. If your company is losing money right now—meaning that there is no profit margin because expenses are greater than sales revenue—then any unexpected money you produce will be extremely valuable because every dollar will bring the company closer to the sustainable state of profitability.
Direct your employees to find dollars and encourage them to bring their ideas to you to help your bottom line. By teaching employees to find dollars, it will open up new doors and possibilities for them and create an unexpected windfall for the company.
More or Less
Want to improve the way you run your business? Entrepreneurs, academics, and consultants from diverse industries offer practical advice on a variety of topics each business day.
To submit a tip for consideration, first check our archive of previous tips to make sure you're not repeating a tip someone has already contributed. Then send the tip to Small Business channel contributor Michelle Dammon Loyalka. Because of the volume of material she receives, she may not respond to each individual.