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May/June 2014 27 An Excerpt from Dr. Al Bates' New Book Triple Your Profit! There are two components to setting a profit goal. Both need to be given very careful attention: Maximum Profit Level—This is determining the highest realistic profit level that can be produced and is measured in terms of profit before taxes as a percent of net sales. The Maximum Profit Level is what the firm could produce if everything were properly planned and controlled. It might be 5 percent or 10 percent or any other number. Time Frame—This involves determining how fast the firm should be able to reach the Maximum Profit Level. For some firms, it might be one or two years. For others, it might be closer to five years. In determining the Maximum Profit Level, the profit figure must always be after paying fair compensation to the owner. In short, the firm needs to produce that fair compensation plus the Maximum Profit Level number. The Maximum Profit Level represents the sort of results produced by the winners—the top 10 percent of the firms in terms of profit performance. There is no need to bother with what the other 90 percent of the firms do. Triple Your Profit! Available at www.tripleyourprofitbook. com, as well as Amazon and Barnes & Noble. It includes Excel templates for understanding the economics of the firm and planning future performance. down economy. In thinking about such catch-up situations, though, it is essential to ensure the increase in payroll follows rather than leads the increase in sales volume. The infrastructure bias comes into play out of a desire to keep pace with sales and generate even more growth. The thought process is that if the firm increased its infrastructure (sometimes more correctly called adding overhead), then sales growth would be not just nice, but even more spectacular. The timing of such increases, in terms of additional sales staff, must be related directly to real sales potential, not to some vague desire for even more growth. Moving Forward Distributors in every line of trade are facing the reality that sales growth is simply not translating into profit growth. It is a pattern that repeats itself every time a sluggish economy gives way to sales growth. The key for distributors, including FEDA members, is to maintain control over gross margin and payroll expenses. If that is done properly, strong profits will follow strong sales growth. About the Author Dr. Albert D. Bates is founder and president of Profit Planning Group. Dr. Al Bates' New Book There are two components to setting a profit goal. Both need to properly planned and controlled. It might be 5 InSeason ™ Granular Seasoning Dispenser. From burgers to fries, drinks to desserts, perfect flavor is in the portions. Handheld, adjustable portions and high-heat resistant. Perfection is InSeason ™ . inseason-server.com | 800.558.8722 ©2014 Server Products Inc. Server Products Made in the U.S.A.