The Power of Being 1% Better

We’ve all probably been watching the Olympics lately. Katie Ledecky won 5 gold medals and broke her own world record in the 800-meter freestyle. I’m fairly confident that what drove her achievement was a combination of talent and her dedication to training at a consistently high level. She may have been committed to being one percent better on a weekly or monthly basis.

Jeff Immelt, CEO of GE has made 1% better a mandate there. GE collects and analyzes data from various areas of operation to make mini improvements in efficiency. They use these updates to software, which can be sent to their equipment plants, to create 1% gains in performance. GE has a vision of boosting productivity in the US by 1.5% annually. If they’re successful over a 20-year period, they could raise the average national income of GE by 30%.

So you may want to make some 1% better changes in your business, but where do you start? Here are 4 places to start looking.

  • When’s the last time you had a price increase? Many of us are afraid to raise prices because we fear losing business to the competition. The reality is that our clients see the value in our products and services. If you provide a product or service for $1,000, a 1% price increase is only $10. Your clients probably won’t even see the change.
  • Can you increase volume or sell more? Tell your sales team to sell 1% more. If your revenue was $500,000 last month, a 1% increase is only $5000 more for the month. Annualized, though, that’s $60,000 per year.
  • Can you buy better? If you manufacture or distribute a product, a 1% reduction in your cost of goods sold (labor and/or materials) can make a huge difference in your gross profit margin.
  • Can you cut overhead by 1%? Let’s face it when times are good, many of us don’t really look hard at some of the fat in our overhead structure. When we grow, we usually don’t look at how the investments we make in operating expenses are giving us the revenue or profit returns we expect. It usually takes a slowdown in business for us to begin taking a look at this.

So here’s an example of the cumulative effect of those 1% changes you might make.

 

Revenue         $5,000,000                1% more/less          cumulative effect                                                       price increase            $50,000                  $50,000

Volume increase        $50,000                   $50,000

COGS               $3,000,000

Decrease               -$30,000                    $30,000

Gross profit    $2,000,000

Operating

Expenses        $1,750,000

Decrease                    -$17,500                $17,500

Pre tax profit $250,000       adjusted pre tax profit         $397,500

 

The cumulative effect of all these changes has the potential of increasing pre tax profit by almost 60%.

Now, let’s get real, it’s probably not feasible to implement all these changes at once. But you pick the ones you want to start with and figure out how to execute on them. Price and volume increases have the greatest impact, so that might be a good place to start.

Being 1% better can have a huge impact on your business. The small changes you make in your business and in life can have a huge impact.

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