“IT’S DIFFICULT TO HIT A TARGET YOU CANNOT SEE.”
I first heard this statement from the late great Zig Ziglar, but it is equally applicable today.
One would think that 62 years after a basic business principle was introduced by arguably the most brilliant business author of all time—Peter Drucker—that virtually every business owner and manager would by now have implemented the principle in their respective business. This, however, is not the case.
Drucker first popularized the term “management by objectives” in his 1954 book, The Practice of Management. Management by objectives calls for business people to write down what they wish to achieve and develop a strategy that will allow them to achieve their goals.
I meet too many managers and salespeople who are guilty of entering the new year with a “wait and hope” mentality. If we just continue working hard, keep on doing what we have always done, they often say, good things will eventually happen. I once heard that this mentality is a lot like firing a shotgun into the air and hoping a duck will fly into your shot.
Ever since I was introduced to Drucker’s principle of Management by Objectives, I have made it a practice to sit down at the beginning of each year and decide how much I wanted to earn in the coming year. I base that objective on what I earned the previous year, how much I believe is possible to earn based on the resources I am investing and based on what I know others are earning who manage businesses similar to mine.
I then calculate how much I believe I can sell and what my operating expenses are projected to be. The last step in the process requires “backing into” gross margin. If I sell this much and if I spend that much, how much does my gross margin have to be in order for me to earn the amount of bottom line profit I have planned to earn?
With the Great Recession fresh on everyone’s minds, it’s easy to overact when it comes to expense control. While controlling operating expenses is certainly important, focusing on expense control exclusively will take you just so far toward achieving your earnings objective, the development of a marketing plan that will allow you to achieve your sales and gross margin goals is equally essential.
In a business-to-business environment, about 90% of a company’s marketing plan is often made up of its field sales force. Do your salespeople possess the talent to take business away from the competition without using price as a weapon?
Are the decision makers in your organization intimately aware of the factors that affect gross margin? Odds are they are not. But to find out for yourself, ask the key people in your company to independently make a list of as many factors as they can think of that influence gross margin. After listing raising prices and buying better, you will most likely find that the majority of your key people will lose altitude rapidly.
It has been my experience that the secret to achieving your objectives lies in the process of developing a good plan of action. Ask each of your salespeople to put in writing specifically what their plans are to sell more to their existing customers and to take business away from the competition.
My goal is to earn 18% more income in 2016 than I earned in 2015. What are your goals for 2016? Have you decided what you want to achieve? Do you have your goals written down on paper? If not, I promise you it will be time well spent if you sit down and spend a few hours hammering out a profit plan for your business.
We all have more control over our performance that we may sometimes realize. Just remember that you cannot hit a target you cannot see.