Efficiency is the word I hear most often when talking with grain company CFO’s. The Sales, Operations, and Finance business segments need to be reviewed and managed with an eye toward profitability. Creating an environment where each segment is pulling in the same direction can be elusive. How can sales grow and operations receive the capital necessary to be successful if the company is not growing its profitability ratios and equity?
The first step to understanding what truly drives profitability for a company is to analyze the cost and frequency of the main customer and lead contacts made by each employee. Even smaller grain companies with a few full-time employees will benefit from this exercise. How many trucks come over the scale, how many phone calls are sent and received? Each of these duties has a cost that should be allocated. This process will tell you where employees spend time and therefore the cost that is being spent on each activity.
The second step is to determine which customers are the most and least profitable to the company’s bottom line. What group currently requires the most employee hours? Which group brings in the most revenue? Every customer is valuable, but this exercise is critical to ensuring that your team is spending time on the most valuable customers.
The third step can be the hardest, breaking unprofitable habits. Reward the correct sales and customer service behaviors and begin to manage ineffective time. The idea that “This doesn’t cost us anything” is flawed. Each phone call, customer visit, and lead visit costs money. How do you become more profitable? Focus on the things that drive profitable outcomes and eliminate the behaviors the lead to bad financial outcomes.
The grain industry margins are predicted to return to the historical levels of the 1990’s and early 2000’s, while many organizations have become accustomed to higher margins recorded from 2008-2014. Every company I have worked through this process has found valuable time and nuggets of profitability. Please allocate time before the New Year and properly review your company’s focus and efficiency. It will be time well spent and bring greater margins and focus in 2017.