5 Areas That Impact Your Biz More Than You Think

Many organizations are obsessed with their profit and loss reports—unfortunately, a number of those companies are looking at the wrong numbers. Let’s look at five areas that may have a bigger impact on your profit and loss report than you think.

1. Customer Sales Volume

Think about what could happen if you were more passionate about increasing the volume of your customer sales as opposed to the number of sales? To do this, take a cue from Milwaukee-based Lectric Beach Tanning Club, which recently hosted a lotion symposium for its clients. The event was geared toward educating tanners about the importance of using lotion and teaching them about the different types available. The theory there is that, if you focus on educating your tanners, your salon will profit from the additional sales made by knowledgeable customers.

2. Not Training

When an employee is hired, a big investment has already been made: the cost of human capital, which includes salary, benefits, payroll tax, social security and more. But all-too-often, management forgets one of the most important aspect of employee investment—training. It’s that small investment in training that leverages the big investment in payroll. A formula to plan your investment in training is: Dollars invested in training (over 12 months) divided by the gross salary equals the percent of payroll dedicated to training costs. The average in the U.S. has been 0.5 to 2 percent, which is fairly weak. Organizations that want to excel should target a 5- to 10-percent range.

3. Employee Turnover

The cost associated with turnover is often much more that managers realize. To calculate the cost of turnover, add the annual income of your employees (front desk attendant, tanning sales consultant, bed cleaner, etc.). Multiply that by seven; that amount is your total cost of turnover. Furthermore, a company that has high turnover will probably have lower customer satisfaction—and that begets customer turnover.

On the flip side of this, however, is not “weeding the garden.” If you do not eliminate your poor performers, you will risk losing your top performers and causing the performance of the enitre team to go down.

4. Positive Word-of-Mouth (PWOM)

Everyone knows that positive word-of-mouth is the most effective form of advertising. But do you know how to measure it? Let’s look at an example: Company A’s advertising is comprised of 70 percent PWOM and 30 percent paid media; company B’s advertising is exactly the opposite (70 percent paid media and 30 percent PWOM).

For these two organizations to have equal revenue, company B would have to employ additional sales consultants. This is because referrals, which come from PWOM, will close at a much higher rate than will leads from paid media. Additionally, company B may have to spend more money writing proposals and providing the sales staff with marketing materials.

That is why businesses that want to generate more referrals should incorporate a PWOM campaign in their marketing plan. Set a goal regarding what percentage of your business should come from PWOM and track your referrals to see if you are achieving your goal.

5. Lifetime Value of a Customer

Most organizations do not have section on their profit and loss report for the “lifetime value of a customer.” But they should. Because, when you lose a customer, you’re not just losing a single order. You are losing the revenue from that client for a lifetime—which can be 25 years or more. And it doesn’t stop there.

Most organizations fail to calculate the additional financial impact of why the customer was lost—if it was because the customer was frustrated or irate at the salon, you can bet that they will spread negative word-of-mouth that may cause you to lose additional customers or prevent potential clients from giving you a chance.

In addition, it has been said numerous times that the cost of acquiring a new account is far greater than the cost of keeping current customers. So be sure to always be aware of who is working harder on your accounts—your company to keep them, or the competitor to steal them.

It is relatively easy to make a case that the above numbers will have a far greater impact on the sales and profit of a company than you may realize. It may take some creative thinking to focus on these areas and find ways to address them, but the effect on your bottom line makes it well worth the effort.

Howard Hyden is a keynote speaker and founder of The Center for Customer Focus. He has an MBA from Pepperdine University and brings more than 25 years of hard-won business acumen and hands-on experience to his clients. He performed extensive research in the concepts for transforming organizations into a customer-focused culture. A sampling of Hyden’s clients includes: 3M, CIGNA and Douglas Broadcasting. For more information, visit www.howardhyden.com.