Tackling the 20 Percent of Revenue You are Losing to Inefficiency

You already know that inefficiencies are bad for business, but do you understand how bad? Every year, many organizations lose 20 to 30 percent in revenue due to inefficiencies. That’s some serious cash that could be going back into developing your business.

Catching money

If that’s news to you, you probably haven’t prioritized the best strategy for increasing efficiency: Documenting your processes. The thought of getting your processes in writing may sound tedious, but once you start doing it, the thrill of saving so much time and money will make you want to keep improving.

The Far-Reaching Impact of Efficiency

When given the same task, 12 different people will do it 12 different ways. Some people will be efficient, and some will not. Every business is made up of many small tasks, and most of those tasks are repeated frequently by a number of people. When you document the most efficient way to do each process, you get 100 percent of people doing it perfectly 100 percent of the time. That means fewer mistakes, which means you spend less time putting out fires and more time doing your actual job.

We improved our most dysfunctional process first, and the results blew me away. For us, making deposits was a huge pain. We constantly experienced complications, and I personally spent two hours dealing with it every week. It took eight hours to fix and document the process. The mistakes ended, and I was able to pass the task to someone else entirely. I’ve now been able to spend those additional two hours each week for the last 15 years leading my company.

Saving time is reason enough to make changes, but we often underestimate how far-reaching the savings can be. Smoother everyday procedures mean less stress on employees, and stress causes an estimated $200 to $300 billion in losses each year in the U.S.

Happier employees also means less turnover. When you count the losses in recruiting, interviewing, hiring, training, and initial reduced productivity, it costs $3,500 to replace one $8.00/hour worker, 30 to 50 percent of the annual salary to replace an entry-level employee, 150 percent for a mid-level employee, and 400 percent to replace a high-level employee.

When you see the numbers and realize how wasteful inefficiencies really are, adopting a strategy to maximize efficiency seems like the only way to go. But like any new tactic, you have to do it well to reap the benefits.

How to Perfect Your Systems

When I refer to the processes in a business, I mean every single repeated task, from answering the phone to bookkeeping to dealing with customer complaints. It may sound daunting to nail down and document every single process, but it’s like any other improvement to a company. You break it down into steps and work your way through the checklist. With this strategy, you’ll see improvements right away.

1. Identify individual processes. Break your company down into broad categories or departments, and then figure out the subsystems within those categories. Continue breaking down systems until every repeated task in the business is understood as an individual process.

Think of your business like a car. A car is made up of many small systems that all function on their own without direct supervision from the driver. You control when to turn and how fast to go, but you don’t have to understand how a fuel injector works to drive a car. The more smoothly each subsystem runs, the better the overall function of the vehicle.

2. Prioritize the least efficient processes. You can’t fix everything at once, so start with the tasks that are the most time-consuming or those that will have the highest impact.

3. Get input from team members. Have a meeting with whoever performs each process the most, and gather suggestions on how to do it more efficiently. There will be a lot of different ideas, but this is more of a brainstorming session.

4. Compile those ideas. Have a manager come up with a potential process based on everyone’s input. Get more feedback from the employees who will be following the procedure until you believe you have the best possible process down on paper.

5. Execute the process. Put your ideas in action, and determine whether what you put on paper works well in the real world.

6. Refine the process. As employees try out a new method, there will probably be some bumps along the road to perfection. Identify shortcomings quickly and fix them. This exchange between management and team members may last a few weeks.

Our first documentation of our deposit process had 53 small steps. Over time, with better software and our staff’s learned ability to simplify, streamline, and economize, we’ve gotten that down to 23 steps. Our first stage of documentation was a phenomenal improvement, but it still took time to surpass excellence and reach perfection.

7. Allow room for people to suggest changes. This should be an empowering strategy for employees, not something that makes them feel stifled and out of control. Communicate clearly that you want and need feedback from everyone.

8. Review processes periodically. Managers should check for possible updates and offer a fresh look. An outside perspective can sometimes uncover areas that can be improved.

Following this strategy to get all those small processes clarified, refined, and down on paper will transform your business (and your role within it). This is the easiest, simplest way to boost your success and productivity without changing what your business does. Our bottom line is now 25 times greater simply because we’ve cut out inefficiencies. Documenting processes may not sound exciting, but for me, the journey to maximizing efficiency and making my company better has been anything but boring.

About the Author: Sam Carpenter is the author of “Work the System: The Simple Mechanics of Making More While Working Less,” now in its third edition. Sam is also president and CEO of Centratel, the premier telephone answering service in the U.S. After seeing successful results from his book, Sam developed Work the System Academy, an online training resource that helps businesses become more efficient and profitable. Sam works as an international business consultant and speaker. He’s been featured on hundreds of media outlets, including NPR and ESPN Radio.

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