Tuesday, March 20, 2012

Working Harder and Earning Less?

I'm starting to hear a consistent theme in conversations with both Chief Executive Boards International members and my general business owner acquaintances. Most businesses are up from a year or two ago. Good, right? Maybe not. Their revenue is up, but hours are up, payroll is up, inventory is up and working capital is up as well.  In some cases they're paying overtime to avoid late deliveries.   Sound familiar?  Read on.  

Several of these same business owners have found that they're not making any more money than they were at lower revenue levels, and at the same time they're getting stretched on working capital. Not to mention the stress.  The reasons vary, but the symptom is more common than I would have thought. When asked what's happened, they say things like:
  • "We've had to add some people to support the increase in business, and they're not up to speed yet." In some cases this conversation has caused a member to realize that at least one of those new folks just isn't going to get up to speed -- ever -- and it's time to cut his losses.
  • "We've had some raw material cost increases"
  • "We're running some overtime to keep up with demand"
  • "We've added some new systems and tools." In at least one case, this conversation caused a business owner to revisit just how those tools have impacted the business. Perhaps the value added by providing more customer documentation is not something the customer is paying for -- it's just added cost to so something "because we can." That member is revisiting some of his newer business processses to look for cost-reduction opportunities.
Several members were reminded that they hadn't raised prices recently. When you're running overtime and seeing raw material costs go up, it's time to raise prices. If you can't make lots of money when you're running flat out, you're doing something wrong.

One member said he's just raised prices by 5% across the board, and they're sticking. He had some pushback from his partner, to whom he replied, "Look, we're running a $7 million business. If we raise prices by 5%, we net another $350k without doing anything -- no more shipments, no more employees, no more inventory and no more work." The partner saw the light.

Have you forgotten how much easier it is to raise prices than to work harder? Do the math -- or see this article:  5 Reasons to Revisit Your Pricing Strategy

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Terry Weaver

Chief Executive Boards International
Chief Executive Boards International: Freedom for business owners & CEOs -- Less Work, More Money, More Freedom to enjoy it


  1. A lot of us built leadership teams that got really good at helping us shrink our business to match shrinking demand. Are the challenges of effectively managing a growing business so completely different that we require a new leadership team. Certainly seizing new opportunities and managing growth requires a different mind-set, but it seems a little cold to toss out the folks that stuck with you through the lean times. I think the first question a leader has to ask (and answer) is whether or not he, himself, has fully taken on that new growth mind-set that this new season requires.

  2. if you work a lot, satisfaction in the form of money will come sooner or later I think.


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