By David J. Cocks
You have closed the books for last year so now it's time to look at your results and see what changes, if any, need to be made for this year.
Tip #1
Obtain the following statistics for the past three years. If you don't already have them at your fingertips, they should be in the end-of-year information you get from your accountant:
•Total revenue
•Total expenses
•Operating profit
•Sales representatives ranked by production
Tip #2
Start by looking at the trends. Revenue and profit should both be increasing. Now calculate the percentage increases. Are they comparable? Revenue and profit should be growing at the same rate. If they aren't, that's your first indicator of a problem.
Tip #3
Now look at expenses. They should be growing at a slower rate than revenue – and, optimally, slower than profit. If not, that's a second indicator. Also look at what expenses are increasing. Are they temporary investments that will help you increase revenue, or are they permanent?
Tip #4
Finally, look at production levels for your sales force over the past couple years. Are they fairly stable? If there have been lots of changes, particularly if revenue is up and profit is not, that's a third indicator. Significant increases in productivity, such as those brought about by the Internet or customer relationship management software, cause many financial problems.
How Did You Rate?
If you passed with flying colors, congratulations! If not, there's still plenty of time to make changes. Many profitability problems can be fixed, particularly in commission-based industries, by adjusting your compensation plans appropriately.