Establishing profit targets helps evaluate performance and lets your clients know how their businesses are doing. It holds employees accountable for their spending and actions. Profit targets lets your clients set goals and investigate why the goals were – or were not – achieved.
Instead of focusing solely on revenue, incorporate expenses and calculate profit targets. The amount of revenue your clients generate doesn’t matter if it costs twice as much in expenses to generate it. Looking at profit instead of gross revenue is a better indicator of efficiency and spending control. Gross profit targets look at the total revenue compared to the costs to sell goods or offer services.
For a better look at overall company operations, set an operating profit target. Operating profit subtracts all expenses except taxes and interest from total revenue. Net income is your total revenue less total expenses; this is another useful profit target. Use profitability ratios or dollar figures during your analysis.
As you assist your clients in setting profit targets, get detailed. Would it be useful for your clients to know the profit margins for each product or service they provide? Is there any benefit in knowing which types of customers are most profitable, or the geographical locations where their business is most successful? Profit margin targets can be as specific as you want. It’s useful to leverage your clients’ industry and competitor information when you’re setting targets. Research what similar companies spend and earn, and use this information to set realistic but challenging targets.
When your clients sets goals, encourage them to set targets relating to profit levels. Incorporating revenue and expenses into the numbers they analyse leaves them more knowledgeable about their entire operations. Instead of just looking at revenue, have your clients look at their business from various profit viewpoints.