© 2011 bottom line up. why talk about profits? © 2011 bottom line up

Why Talk About Profits?


The Power of Small Changes

1 + 1 + 1 = 19


PERIOD 1 %

Revenue $ 5,000,000 100%

Direct Costs (COG) $ 2,500,000 50%

Overhead (SG&A) $ 2,000,000 40%

Net Income $ 500,000 10%


PERIOD 1 % Change Price+1%

CHANGE PRICE %

Revenue $ 5,000,000 100% $ 5,050,000 101.0%

COGS $ 2,500,000 50% $ 2,500,000 49.5%

SG&A $ 2,000,000 40% $ 2,000,000 40%

Net Income $ 500,000 10% $ 550,000 10.9%

Increase in Profit $ 50,000

% Increase in Profit 10%


PERIOD 1 % CHANGE COGS %

Revenue $ 5,000,000 100.0%Change COGS

-1% $ 5,000,000 100.0%

COGS $ 2,500,000 50% $ 2,475,000 49.5%

SG&A $ 2,000,000 40% $ 2,000,000 40%

Net Income $ 500,000 10% $ 525,000 10.5%




PERIOD 1 % CHANGE S,G&A %

Revenue $ 5,000,000 100.0% $ 5,000,000 100.0%

COGS $ 2,500,000 50%Change S,G&A

-1% $ 2,500,000 50%

SG&A $ 2,000,000 40% $ 1,980,000 39.6%

Net Income $ 500,000 10% $ 520,000 10.4%




PERIOD 1 % COMBINED IMPACT %

Revenue $ 5,000,000 100% +1% $ 5,050,000 101.0%

COGS $ 2,500,000 50% -1% $ 2,275,000 45.5%

SG&A $ 2,000,000 40% -1% $ 1,980,000 39.6%

Net Income $ 500,000 10% $ 595,000 12%




PricingPERIOD 1 % Change Price

+1%CHANGE PRICE %

Revenue $ 5,000,000 100% $ 5,050,000 101.0%

COGS $ 2,500,000 50% $ 2,500,000 49.5%

SG&A $ 2,000,000 40% $ 2,000,000 40%

Net Income $ 500,000 10% $ 550,000 10.9%




Start smalland monitor


How does 1% translate to the customer?

$1 per barstool$2 per hour

or


Price increased from 99 cents to $1.29

on one-half of their songs

= net of 15 cents per song

250 million songs per month X .15

= $37,500,000 per month or

1.25 million dollars per day



And Re-training

and Re-training and Re-training and Re-trainingand Re-training and Re-training and Re-training

Ask Rich and Mary



Ben Franklin was

Wrong…

PERIOD 1 % CHANGE COGS %

Revenue $ 5,000,000 100.0%Change COGS

-1% $ 5,000,000 100.0%

COGS $ 2,500,000 50% $ 2,475,000 49.5%

SG&A $ 2,000,000 40% $ 2,000,000 40%

Net Income $ 500,000 10% $ 525,000 10.5%



Direct Costs (COGS)


Overhead (SG&A)PERIOD 1 % CHANGE S,G&A %

Revenue $ 5,000,000 100.0% $ 5,000,000 100.0%

COGS $ 2,500,000 50%Change S,G&A

-1% $ 2,500,000 50%

SG&A $ 2,000,000 40% $ 1,980,000 39.6%

Net Income $ 500,000 10% $ 520,000 10.4%




Gross Margins:

Leading Indicator

ofProfit

Gross Profit = Take Home Pay


Current Decisions

vs.

Past Circumstances



PATH DEPENDENCE


Time:

Einstein discovers that time is actually money


1. Mandate vs. manage – Get buy-in and involvement

2. Highly variable expenses like marketing, training, support, etc. – Look at long range effects

3. Across the board cuts – Be strategic!

3 Common Mistakes


Make Expense Management A Profit

Center

Be Strategic:

Waste is Expensive

With 10% Profit -

Unnecessary Expenses of

$1000

Requires Additional Sales of

$10,000


Vendor discounts and agreements

Compliance audits - vendors and employees

Supply management

‘Shrinkage and theft controls’


One neckto

choke



Fixed Isn’t Always Fixed

Overtime

Commissions

Expense Accounts



Eliminate Empty Calorie Spending

Re-bid Calendar


$20,000 per weekPrice variance +/-25%

Savings of up to $5000 per week


The eyes can see anything but themselves

When you’ve gone as far as you can

internally – bring in outside experts


What can I do?

What can my dept. do?

What can my company do?

What “dumb things” should we stop doing?

Ask Rich and Mary


Lucky 7 Challenge

$7 million

open orders$7 millionrevenue

$700,000 Bottom Line

7 7 7

How do we effectively manage costs and

create ongoing profitability?

The Four Hands Challenge

Better Faster Cheaper

Global ResourcesGreat People & Attitudes

Training

Up 1000% - $55,000

Salaries

Up 40% - $2.05 to $2.9M

Benefits

Up 69% - $141,000 to $246,000

Human ResourcesGreat People & Attitudes

Prior Year

India 9 China 8Europe 1USA 54

Total 72

Current Year

9

10 1

58

78

Advertising, promotions, mailings, PR

Prior yr -$168,000 Current year -$277,000 up 65%

Trade Shows – $ 1,000,000

Travel & entertainment – Crate / NYC

Materials (printing, Web sites etc.)

Market Development

Offices in India, China, and Brussels

Travel to markets world wide

Potential offices in Vietnam and Indonesia

Samples shipped to clients

Identifying factories

Quality control

Samples at shows including air freight

Introducing New Product/QA

Controllable Costs – Great Examples

Freight/Shipping

Courier Fees

Vendor Deposits

Interest and Bank Fees,$329,000 down to $172,500

Rejecting ½ of a Container

Processes and Systems Control Costs

THEY NAILED IT!

Great Culturesare Forged not Forced

What Will You Be Taking Away?


© 2011 bottom line up. why talk about profits? © 2011 bottom line up

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