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10 minute MBA

The magic profit spell you won’t learn in Business School

What is it about profit that scares business owners?

Unfortunately it seems that the list of critical things you won’t learn in Business School gets longer every year. One of them is the idea of continuous, tiny, incremental, almost imperceptible improvement specifically in relation to profit.

In Business Turnaround in 7 Easy Steps I revealed my thinking on incremental business improvement.

In the book this Magic Spell was specifically used to help my readers understand cash-flow and what they could do to improve it fast and make more profit.

However, the spell works on any business factor, not just profit, and is so simple to implement that I am frequently awestruck, not just by its performance but also by how few business owners employ this tactic.

Its based around the concept of 1%.

Too often we focus on the big numbers in business. As I discuss in the Winning in Business Manifesto, business owners often get caught up in the desperation cycle. This is when things are allowed to slip so far that only a miracle could produce the required cash-flow boost needed to keep things on an even keel. Profit is the last thing on their mind and mere survival even seems unlikely. This is when business owners are most likely to make big bold advertising statements in a hope for an explosion of new business. It doesn’t work.

Instead, try getting into the habit of working the 1% magic spell on an on-going and permanent basis.

Focus on one thing at a time and try to improve it by just 1%. This can be over a week in the case of things like reducing customer complaints, or over longer or shorter periods for other factors. For example you might try to increase the number of customer contacts by 1% a day or reduce expenditure by 1% a month.

Whatever you do with this it will only work if you go through the 4 step planning process detailed in the 10 Minute MBA. Simply saying that you will improve a factor by 1% will not make it happen. You will need to formulate a plan in the usual way, ending in projects you can start and actions you can take to achieve these projects.

Of course once the 1% spell has been released it just continues for ever and you keep adding new factors to work on. The effect compounds of course, so that the 1% improvement added to the bottom line this month is subjected (as part of the new total) to another 1% improvement next month. So a monthly and almost imperceptible improvement of 1% in a month compounds to over 12% in the year; a good result in anyone’s language.

However, you don’t have to stick to 1%. Try changing this to 2% and the annual difference is over 26%. In the customer contact example over a month you would improve this factor by over 30%!

Try the 1% magic spell, you’ll be glad you did. Imagine the effect of increasing your profit by 1% every day, week or month?

And of course every other aspect of your business that you subject to the 1% treatment will automatically be contributing to your an increase in profit too!

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