Increase Profits Without Adding Resources - Part 2
In Part 1 we explored two profit drains, commodity pricing and a “lack of time to think”. In Part II we’re going to discuss two more profit drains, problem employees and troublesome customers.
Problem employees would be easy to spot if they all looked like Freddy Kruger in “The Nightmare from Elm Street”, but they don’t. Many wear friendly façades. How can you tell when you have a problem employee? Observe your employees. You know you have a problem when several of your employees:
- consistently avoid one of their cohorts
- indicate that they would rather handle a project themselves than “bother” the other person
- regularly come to you with information “just to keep you up-to-date” or so that you don’t “hear it somewhere else”
- regularly withhold information from one of their coworkers
- state that there were “witnesses” to the conversation they had with a coworker
The coworker your employees are avoiding is making life difficult for the others. You may be thinking, “Well, I can see how that’s a problem, but is it really a profit drain?” Let me share the “black hole” analogy that a good friend and fellow consultant, Andy Klemm, Klemm & Associates, uses.
Whenever an employee doesn’t do his job or causes a fellow employee difficulty in doing her job, some of his/her work has to be absorbed by coworkers. The coworkers then aren’t able to complete all their work, which means their superiors or other coworkers have to pick up some of their work. On and on it goes. This one person ends up being a “black hole” absorbing energy from everyone around them. In fact, he often absorbs energy from several layers above him.
Now, think about where the time and energies of his coworkers and superiors could be devoted. Here’s a simple formula for measuring the cost. Simply list the things you want to accomplish. How much would it add to your bottom line if you could accomplish them? That’s the immediate cost of one problem employee; the long-term cost can include loss of your most creative, highly productive employees. Now the question is “What do you do about it?”
The first step is to take action quickly. I know that confronting employees with behavior problems is unpleasant, but the longer you wait the greater the risk that you’ll lose your better employees; besides, these situations only get worse. In over 30 years in management, I’ve never seen a problem employee turn around on his own.
What action should you take?
Identify the problem behavior(s). If it/they are not obvious to you, talk to the person’s coworkers. Assure them that you’ll keep what they say in confidence, then honor your commitment to them. Also let these employees know that your goal is to help the problem employee overcome these problems – that termination is a last resort.
Approach the “problem employee” as a coach. Most people aren’t problems, they simply have behaviors that cause them (and others) problems. Let the person know that you want to help him avoid the problems he’s experiencing. Ask him to come up with alternative behaviors that will help him accomplish his goals without hurting his coworkers. The more you can get him to participate, the greater the likelihood he’ll adopt new behaviors.
Schedule a follow up meeting 30 days later to jointly evaluate his success. If you see that he’s not making any attempt to change his behavior, you can and should call an earlier meeting to discuss his lack of effort and the inevitable employment termination that will occur if he isn’t willing to change his behavior.
Encourage coworkers to help him in the transition from “problem employee” to valued colleague. When you see that the person is trying to adjust, ask his coworkers to encourage him openly and honestly whenever possible. During times of change we all need positive reinforcement.
Terminate his employment quickly when he ignores your guidance and continues the problem behaviors. Remember the “black hole”. The costs, financial and emotional, are mounting quickly while energy levels are dropping.
I’ve seen employees so happy to see a problem employee gone that they picked up the extra workload and handled it without requiring a replacement employee. If that happens, it’s wise to take some of the savings to give those employees a bonus to reward their efforts. Now that we have an approach for dealing with problem employees, let’s see what we need to do with troublesome customers.
Pareto’s Principle, also know as the 80/20 rule, certainly describes the experience most of us have with our customers. 80% of our customers are fair-minded, reasonable people with whom we have an enjoyable association. The other 20% drive us bonkers. They also cost us a lot of money. How much?
Well let’s see. What could you do with the extra time? Could you spend more time with your customers exploring trends in their business? Would those insights allow you to anticipate their future needs? If so, how much earlier could you position your company to satisfy those needs? If your company is the only one that offers solutions for your customers’ needs, what does that do for your pricing and profit margins? Let’s face it, the first to market with a new product or service that’s needed has carte blanche when it comes to setting prices. If you’re the only game in town, customers have only two options, pay your price or do without.
Now, I’m not suggesting that you gouge your customers. That strategy will come back to haunt you. I am suggesting that you can get 5% to 10% more than the typical profit margin for your industry by being first to market - that’s $5,000 to $10,000 per $100,000 of revenues. Not exactly chump change, is it? This is only one way that troublesome customers cost you money. In addition to robbing you of valuable time, these customers also rob your employees of time.
What could your employees be doing instead? Improving collections of your receivables? Managing cash flow to reduce interest costs? Planning the next job so that you achieve better margins? Bidding more jobs? Meeting more prospective customers? Exploring other markets to serve? Wouldn’t any of these activities dramatically improve your bottom line?
Then there’s the inevitable wait for your money. The most troublesome customers are never satisfied; consequently, they hold your money. They may even force you to take them to court to get your money. Again, the costs go well beyond interest, legal and filing fees. Every moment spent dealing with these issues is time taken from more productive, more profitable activities. You can avoid many of these problems? How? Learn to identify problem customers before they become customers. How? Simply monitor their negotiating style.
If they’re reasonable, (they want a fair deal for both you and them) they’re likely to be a good customer. If they’re unreasonable, if they keep trying to get the price down without giving anything up (a reduction in quality, fewer services, slower delivery, quicker payment), you can almost make book on them being a troublesome customer. You’re better off letting them eat your competitors’ lunch than yours.
Now, for those of you who absolutely hate to walk away from the deal, here’s one more approach you can try. Establish very early in the discussion that you desire a fair deal for both parties, then ask the prospective customer to evaluate his requests in light of “fairness”. This approach will help you determine whether or not you can retrain the prospect to deal with you in a way that makes sense for both of you. Years ago, I used this technique successfully with a difficult prospect who became a very good client. To this day, I consider myself lucky that things worked as well as they did. It is the only success I’ve had with this approach in twelve years.
The best advice I can give you regarding troublesome customers is to spot them early,then refer them to your competitors.
Problem employees and troublesome customers are two more profit drains that, when closed, will help you increase profits without adding resources.
Copyright © 2002, Dale Furtwengler, all rights reserved