The most powerful profit lever

We need to talk about prices

Price is the most powerful profit lever. The arithmetic is simple. If costs are $9 and you sell for $10, your profit margin is 10%. Raise your price 10% to $11 and your profit doubles to $2.

It’s also the loss lever. Cut that price by 10% and profit disappears.

Price is the quickest thing you can change in the margin equation. Reducing expenses requires careful planning and execution. Prices can be shifted overnight. Want to move idle stock? Put it on sale.

Price is also the most flexible marketing tool. It can be bundled with other offers. It can make a statement about your quality, attract customers or build loyalty.

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Handling negative situations

To feel better, feel worse.

How hard is it to keep that sunny outlook going when you are surrounded by negative people?

For some reason, we feel we should be above this, that we can maintain our personal dignity despite the environment conspiring to press all our buttons.

Can we actually escape it?

I wonder. Many people learn to not react. That gets you part of the way. It also avoids escalation. In the words of my daughter, a closed mouth gathers no foot.

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Climbing the wall of worry

Time to get off?

Because I spent over 35 years in financial markets, people often ask me about stock markets. What can I tell you?

Here’s the truth: I have absolutely no idea where markets will end up this year.

I can give you some probabilities. I can name some stocks that might outperform. I could make some fairly reliable dividend forecasts. I can probably identify some stocks that are undervalued, relative to the market.

But I have no idea whether Greece will default. Or if it does, whether another half dozen will follow. I don’t even know what will happen if they do. Maybe stocks will go up on the resultant clarity. Nor do I know if property in China will collapse or land softly. Or if Iran will both produce and explode a nuclear bomb.

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What's the best opportunity?

Simple rules about creating value 

I addressed a group of CEOs in Asia last month. Several had a problem. Their business was cash flow positive. They had it coming in quicker than it was going out. Funds were piling up in the bank. 

So what’s the problem?

The fact is, money in the bank earns well below the return on capital they usually generate in their business. The excess cash wasn’t really creating value.

It’s the opposite of leverage, where, if you borrow money for less than the return you generate on that money, you create value. In theory, at least.

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Walking the talk

Had any courageous conversations lately?

Leadership is mostly about managing change. It is easy to lead from the front when you’ve got a following breeze. It’s when you run out of wind that it gets tough: your business slumps; office politics take a turn for the worse; there’s a problem with your best client; you top sales team is getting poached.

These are normal business issues but sorting them out can mean changing the way things are done. Unfortunately, that also often means changing behavior – either yours or someone else’s.

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