Why Run Your Company With “Profit Centers”?

Aug 10, 2020 | Income, Leadership

There is a debate going on in our industry — some say you should have a separate sales department and a separate production department. Others say you should set up your company as a collection of profit centers, where one person oversees both sales and production.

(Some companies will have a mix of both, but that’s a different story.)

Either of these two arrangements can work, but all things being equal, the advantage will go to the profit center.

The large multi-branch commercial companies do this out of necessity. Their branches are in effect profit centers.

This works equally well for residential firms. For example, A+ Lawn and Landscape, the host of my Summer Growth Summit, built a company powered by profit centers.

Why do profit centers excel? 

  1. Accountability for the divisions’ performance is clarified. One person is ultimately in charge of its people, growth, and cash flow.
  2. Net profit is more easily calculated and managed.
  3. Managers who learn to lead a profit center can become more valuable in that they understand bottom-line responsibilities.

How do you develop and grow your profit center?

As I prepare for my upcoming Summer Growth Summit, I am reflecting on this very question.

Here are a few tips you can follow to improve the performance of your profit centers:

1. Invest in great leadership. You should never try to scrimp on hiring (or promoting) leaders for your divisions. If you want “A” performance, invest in the talent to get you there. As I always say, “great employees will make you money, bad choices will cost you money.” Install “A” leaders; then have your “B” potentials being mentored under them.

2. Pick a niche you can own. Don’t try to be all things to all people in your profit center. If you want to scale and make high profits, then get clear on who your target clients are, what service you are providing for them, and what systems you will use to make things go.

3. Define your services as a product. This may seem counter-intuitive, but services are hard to scale. The more systematized and product-like you make your services, the easier it will be to have others manage and grow your profit centers.

4. Think of profit as a package. It’s ok to have a loss leader or parts of your service that bring in an average return, but the total margin of your division should still end up high after enhancements and upsales are performed.

5. Sell with speed. Do whatever is possible to ensure that all customer wait time is removed from the sales or design process. This allows the client to buy on passion and emotion, with the price being secondary.

6. Tie your people to the desired outcomes. Gamify your business by tying the crews and salespeople to the same goals.

7. Give management daily, weekly, and monthly metrics. And give your production teams daily and weekly metrics as well. Keep score like it counts and then make it count!

To learn more about growing market share, diversifying and building up profit centers, join us in Iowa (or by computer livestream) at the Summer Growth Summit.