Profit Improvement Detectorist – Part 2

Profit Improvement Detectorist (Post no. 2)

This is the second post in a series discussing why it is very normal for Business Owners and Managers to not know where to look to make improvements to their business.

Business Owners and Managers are rarely experts in everything that concerns their business, and that’s why it is normal to engage Business Improvement Experts like me on a contract basis to both detect and unlock profit improvement initiatives.

Case Study No. 2 – Non-performing Australian Business Unit of a Multinational

As an established Profit Improvement Detectorist, the multinational concerned asked me to complete a Business Review of an unprofitable Business Unit in Australia to see if it was worth saving.

On day-two of the Review, I examined the costing models and immediately detected several issues, the biggest being how the Business Unit was charging out employee wages for each job. They were simply charging out the employee’s base hourly rate plus a markup of 50% which highlighted the following issues:

1. No oncosts such as payroll tax, superannuation, health insurance, etc. included in the charge out rate.
2. The maximum achievable productivity of a staff member when considering holidays, bereavement leave, training, travel days, etc was 48%.
3. Each employee was working on average 82 hours per week. The first 40 hours at normal time, the next 3 at time and a half, and the balance at double time.
4. The employees were working Out-of-State and/or in mining areas 75% of the time. This meant that they were paid either an Out-of-State or Mining Allowance (or both, if working at an Out-of-State Mining site).

The net result of this was that 20 employees were only being charged out at 62.5% of what they cost the Business Unit to employ them which, in real money terms, translated to a loss of $2.8M per year. 

My solution was to raise the hourly charge out rate to 360% which resulted in a profit on the wages of $3.8M – a turnaround of $6.6M.

And if you’re wondering how the Business Unit’s customers reacted to the increased charge out rate, their only comment was “we couldn’t understand how you could be so cheap.”

The biggest issue here was that the Manager had been advised by clients that they were significantly cheaper than anyone else but did not bother to investigate why that was the case.

For more information on Business Reviews and Profit Detection, please contact me at john@intotheblue.co.nz or (021) 625-871. 

My point of difference is that I can rapidly identify and add fast-tracked profits businesses.  I am therefore offering Zero-Risk Business Reviews – No Profit Improvement No Fees.