I talked earlier in the week about when to use systems thinking in business. One of the outcomes you can achieve by paying systems thinking is to increase profits. I want to dive deeper into that today.
Profits is a word that is used in different ways, so let’s start by defining profit. Profit is the amount of money your business is bringing in after you subtract the expenses of your business.
To understand how systems thinking can help you increase your business’s profits, you need to understand the role of efficiency in systems thinking.
For an example today, let’s use an example of creating content for organic social growth.
Efficiency – A Key to Increasing Profitability
To understand efficiency, one must understand the pieces that go into and come out of creating that content.
We will keep our example simple and say that what goes into our content creation is a topic, an image, some research, and a website to post our content on. There is also our time it takes to actually do the work.
In terms of outputs, we’ll say that for now, our content creation system generates us a 2000 word article each week.
We could measure things about our system today that would give us a baseline understanding of our efficiency.
Think about the inputs. How are we getting images? What is the cost in time and money? Let’s say we use a paid service that takes 15 minutes of searching and $5 per article.
How much time are we spending doing research? Let’s say one hour.
How much does our web hosting cost? We’ll say $10 a month or $2.50 per article, assuming we post 4 articles per month.
How much time do we spend writing and editing content? Let’s say 2 hours for each article.
With these questions answered, we now have an understanding of the baseline efficiency of our system.
Look at our inputs – $7.50 and 3 hours and 15 minutes.
Look at our output – a 2000 word article.
We can now work to make this system more efficient than it is today.
Reduce The Inputs
We’re paying $5 per image for each article. Can we lower that cost? Is there a free service we could use and still get the same results? If there’s no free service, is there a monthly service that’s cheaper than $20 a month? (4 images a month for $5 each).
If we change to a service that charges $10 per month, we’ve now reduced our image cost by 50%.
We are getting the same output, a 2000 word article with an image, but we are putting less into our system. We’ve improved the efficiency of that system and increased our profits!
We can also look at the cost of our web hosting and the time spent doing the associated activities in our system. A reduction of either of these would also increase the efficiency of our system and increase our profits.
Increase the Outputs
Another way of looking at how systems thinking and efficiency help us increase profits is to focus on increasing the outputs without increasing the inputs.
If we changed our system to use dictation software so we ended up with the article and an audio file in the same amount of time, we’ve now improved the efficiency of our system (we’re getting more outputs for the same inputs).
That audio file could be posted as a podcast, increasing our organic reach, leading to more Customers.
You could create a video instead of just the audio and then use that video file to create both the podcast audio and the written article, giving you even more outputs.
Direct vs. Indirect Increases
By improving the efficiency of your systems, you will directly or indirectly increase the profits of your business.
In the case of saving money, you will directly increase the profits your business makes.
Saving time could be direct or indirect savings. If you’re not hiring that guy on Fiverr or not using hours with your virtual assistant, you’re saving hard costs that will directly increase your profits.
If you’re saving your own time or an employee’s time that’s going to do something else, these are soft savings that won’t directly increase your profits but allow you to do other work that will.
Increasing outputs could also be a direct or indirect increase in profits, depending on your business and systems.
If you’re a ghostwriter paid by word count, then increasing your word outputs would be a direct increase in your profits.
If you sell cosmetics, having extra words or a video /podcast will increase your reach, leading to more sales in the future. This would be an indirect increase in your profits.
It’s important to keep in mind that while we used a simple example with small numbers, this same thinking can be used for complicated systems and large dollars just the same.
It applies to any system anywhere in your business.
By applying systems thinking to your business, you can improve the efficiency of what your business does, leading to direct and indirect increases in your profits.
As always, if you have questions or concerns, shoot me a message and I’ll be happy to get back to you. Happy optimizing!