Everyone wants to grow profits, but do to so you have to know what truly moves your bottom line.
Speaking at HDAW Tuesday in Las Vegas, Dr. Albert Bates says growing profits requires more than just selling more parts.
To truly grow your profits, you need to know your key profit indicators (KPI).
“People in this room, you could make three times as much as you’re making now” by identifying and capitalizing on your KPI, says Bates during his HDAW presentation.
Bates defines KPI as the factors within your business that alter and change your bottom line. Sales, inventory expenses and payroll are among the KPIs facing distributors today. Bates says two in particular, sales and payroll, are the most important of all indicators.
When looking at your business moving forward, Bates says distributors should look at both factors together.
“We should replace sales growth with sales versus payroll growth,” he says. “The tendency is to think about those at the same time … right now we don’t even have the same people thinking about them.
“We need to look at them together.”
To grow profits, Bates notes that it is imperative for sales to grow at rates ahead of payroll. He advises distributors grow sales at at least the inflation rate with a safety factor, and that payroll should grow by 2 percent less than sales.
He also notes that gross margin should increase by 0.2 percent, and other expensive should decrease by 0.2 percent.
This is important, he says, because of the rates of growth. Profit grows faster when payroll expenses decrease than when sales increase.
“Controlling expenses is a better way to drive profit than more sales,” Bates says.
To do so, he says distributors should mandate change.
Profit doesn’t explode over night, it takes work. By mandating changes to your KPI, Bates says distributors can create long-term processes to grow.
“Those are not gigantic changes,” he says. “Little things mean a lot.”