Buyer's Guide

Our purchasing experts provide exclusive, impartial advice to guide you through your buying decision.

Step by Step Guides
Business Advice

'Found Dollars' The Most Valuable Kind

How a Company Can Find Unexpected Dollars

Written By: Larry Myler, Author of Indispensable By Monday (Wiley, Feb. 2010)
A dollar is a dollar, right?
 
Wrong.
 
All dollars are not created equal.
 
The majority of employees, managers, executives and business owners think that every dollar has the same value to a company. But this is not true. When you make a dollar through sales, you have overhead costs like commissions for the salesperson, the cost of goods sold and general and administrative expenses. If the company’s net profit margin is 5 percent, that sales dollar will yield $0.05 in net profit.  However, if you produce a dollar through cost cutting, the entire amount goes straight to the bottom line. Expense reductions and other efficiencies provide one-hundred-cent dollars to a company, not five-cent-dollars.
 
Finding unexpected dollars is also a great way for the non-salesperson to add value to the organization and gain indispensability. In other words: If a salesperson makes quota, it’s expected; but if a non-salesperson discovers hidden money, it’s a windfall.
 
But how can you tell how valuable a cost-saving idea will be? Let’s say you know your idea can save the company $25,000. Because found money is one-hundred percent profit, what size sale would it take to earn the same amount of profit? In other words, what is its sales equivalency?
 
To determine the sales equivalency of any cost reduction, you need to know (or at least estimate) your company’s profit margin. If your company’s net profit margin is five percent, it would take a $500,000 sale to yield the $25,000 in profit that you can create with a $25,000 cost-saving idea. So, in this example your idea would be equivalent to making a $500,000 sale. Not bad, especially if you have no way of actually making sales. Non-sales people can most easily create equivalent value by finding efficiencies.
 
The narrower your company’s profit margin, the more valuable your contribution through efficiencies. For example, at a net profit margin of one percent, that same $25,000 in cost cuts is now equivalent to the profit found in a $2,500,000 sale! And if your company is losing money right now—meaning that there is no profit margin because expenses are greater than sales revenue—then any unexpected money you produce will be extremely valuable, because every dollar will bring the company closer to the sustainable state of profitability.
 
Consider this example. I worked my way through college as a machinist manufacturing parts at an aerospace/defense subcontractor firm. On the first day of this job, I was shown the five machines I would be operating. The trainer told me that my quota of finished parts would be 12 trays of 12 parts each—or 144 total parts per day.
 
Though I completed my quota for the first day, I was befuddled by the manufacturing process. The production of each part required me to stand and wait for one machine to finish its automatic, 30-second procedure. Because of the physical arrangement of the machines, I then had to carry the part three machines down the line to perform the next procedure. From there, I carried the part to each of the remaining three machines for completion. I seemed to be wasting a lot of time standing around, watching machines perform automatic functions, and transporting parts back and forth.
 
On the second day, I came in early and enlisted the help of a maintenance worker to rearrange the machines. The new configuration allowed me to put one part on one machine and, while that part was being processed, start another part on another machine. This resulted in a much more efficient process, and by lunchtime, I had produced 144 completed parts. At the end of the day, there were 288 parts awaiting assembly. I doubled my productivity merely by rearranging the machines.
 
Over the next couple of weeks, this increase in production caused some interesting challenges. Workers and suppliers who produced the materials I needed had to increase productivity to match mine. The assembly department had to devise ways of increasing their efficiency. But we worked together to come up with solutions everyone could buy into. As we adjusted, production increased company-wide, and the cost per part dropped considerably
 
As you can imagine, this relatively small change saved the company a great deal of money that went straight to the bottom-line and was equivalent in its profit value to a nearly unattainable sale.
 
If you’re a leader, teach your employees at all levels how to “find dollars” within their own job responsibilities and in the work processes around them. Encourage them to bring those ideas to you to help the bottom line, and reward them for doing so. If you’re not a leader in the organization, your best strategy is to find one-hundred-cent dollars. It will create an unexpected windfall for the company—making you indispensable in the process.
 
Larry Myler is the author of Indispensable By Monday, a business strategist and consultant for companies ranging from start-ups to Fortune 500 companies including Lockheed Martin, AT&T and Shell Oil.

 

Find Pre-screened Vendors

Compare top rated vendors in more than 80 categories. Minimize the risk of hiring unknown contractors

Visit the Vendor Center now or select a category below:

Related Articles
Compare Top Rated Vendors
Grow Your Business with High Quality Referrals