RUN WITH THE Big dogS™ newsletter
 Volume 3, issue 27

Are you overlooking an easy way to increase margins?...John

Profit enhancement idea

We have a client that set a goal to achieve a gross margin of 55%.  This was an aggressive target given that their only significant costs were people.  They had invested lots of energy in enhancing processes, optimizing pricing, and overall training without much success.  In one of their all-hands meetings one of the employees observed that the company was making poor use of their best people.

People were assigned to projects based largely on their availability with a one size fits all standard team of junior and senior staff.  About 50% of the client's projects were priced based on time and materials, the other half fixed price.  They easily achieved their profitability objective simply by assigning their senior people to the the fixed price projects where their high productivity would dramatically affect profitability.

Individual productivity can vary dramatically based on the employee's passion and competence. If he is passionate about the work and has experience in the specific problem area, the tools required, and myriad of potential pitfalls he could be as much as one hundred times more productive than someone selected at random. It makes sense to allocate your best people to the projects that have the biggest impact on company profitability and success.