Resolve to Make More Money!
But Is That What You Really Want?
With two decades of New Year’s business resolutions behind me, I’ve noticed that most business resolutions begin with efforts to increase gross revenue. That sounds sexy and fun, and it’s often the easiest to impact, but in some situations, it can actually cause profits to plummet.
I say, resolve to be more profitable; THAT’s where the real money is.
Those line item expenses between gross revenue and gross profit, that’s where the money is made. The challenge is to target line items that have no impact on production, personal income, or profit. An easy item to target is a reduction in energy expense.
I’d like to share a story with you about my buddy, Barry. Barry’s business is in a 3,800 square foot building in Jacksonville. The activities in Barry’s building are predominately administrative, with some storage. There are no freezers, smelters, or other big machinery. Yet, Barry spent $7,662.34 in electricity the previous year.
That’s over $600 per MONTH!
Barry wanted to reduce his electric expense, but because he was leasing his building, he was interested in expense reductions that were no cost or low-cost to implement. Barry decided to have an Assessment of Energy Reduction Opportunities (AERO) done for his business (basically, very similar to a residential energy audit).
Depending on the building and business being assessed, expense reductions range from 10-30%, with 19% being the average savings. In Barry’s business, an average reduction would yield an annual savings of $1455, with a potential savings of $2298, all without significant capital expense.
An expense reduction that happens without a capital expense drops right to the bottom line as profit. Barry likes profit! He was also open to the idea that buildings don’t consume electricity, the people in them do.
Implementing Behavioral Energy Change (BEC) is the most cost effective strategy to reduce the energy expense line item. The AREO report documents where energy is being consumed, while the implementation of BEC empowers the people to capture those savings without significant capital expense. It is the empowerment of profit!
An AREO report identifies all the opportunities for reductions and prioritizes them based on their calculated Return on Investment (ROI). An ROI above 20% is a very sound investment, but Barry’s priority was no capital investment. With no investment, even the smallest of savings yields an extraordinary ROI.
So the challenge was to chase Barry’s energy consumption a dime at a time, looking for any and every opportunity for reductions that could be had without expense. There were dozens! One in particular shows how easy it can be to increase your profit by implementing behavioral energy changes.
Barry’s building had a 50-gallon electric water heater, the same type that most of us have in our homes. The AERO calculated that Barry was spending $510 per year heating water for the rest room. I suggested to Barry that he install a $75 timer on the water heater for a calculated energy savings of $300 per year, a 400% annualized ROI. Barry switched the water heater breaker off, stating he wanted all the savings, and none of the hot water!
If only every expense reduction were so simple.
The combination of changes that Barry made as a result of the AREO assessment totaled $2314 profit to the bottom line, with a 30.6% reduction in electric expense. Barry’s only upgrade expenses were bulb changes in some lighting fixtures.
Your business probably has energy expense reduction opportunities similar to Barry’s, even if you don’t want to give up hot water. Be like Barry; take advantage of an AERO to seek out energy expense reduction opportunities that can be inexpensively implemented to increase your business profits.
Back to New Year’s Resolutions: resolve to increase profits! And if your plan also includes an increase in gross revenue, isn’t it nice to know the energy expense to capture that growth did not grow as fast your revenue? And that means even more profits.
Now that’s a New Year’s resolution that makes me happy!
Wally Conway is a graduate of the U.S. Naval Academy, retired Navy Pilot, licensed contractor, home inspector, energy auditor, media expert and entrepreneur who is the founder of HomePro Inspections. He can be reached at Wally@gohomepro.com