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Trying to Improve Your Profit Margin? Here's How You May Be Doing It Wrong.

Annual trade conferences are always a time for fellowship, friendship and a time to highlight for one another various best business practices.

Each year, speakers gather to share industry trends, economic data and operational practices designed to help organizations increase efficiency, with the stated outcome of driving margin improvement and better profits.

At the Hardwood Manufacturers Association (HMA) annual conference this year we focused on operational functionality and maximizing process to improve margin.

  1. Pike Lumber demonstrated margin improvement by restructuring the mill to enhance the workflow process for both employees and the material.
  2. Middle Tennessee showed us how incorporating new equipment would improve efficiency and margin.

The overall goal is to continue to challenge our workers, improve process efficiency and fully utilize equipment to squeeze out improved margins of 5%, 15% and 20%. But as you look at these areas for profit improvement are you ignoring other cost centers?

The average health insurance policy for companies has increased year by year. According to Health System Tracker, health insurance administrative costs have risen from 5.9% in 2000 to 7.9% in 2015. Healthcare inflationary trend continues to increase every year.

While a 2% increase in trend doesn't seem significant, consider that healthcare spending growth has outpaced the growth of the U.S. economy "by 2016, the amount spent on health had increased to 17.9% of GDP."

When I meet with employers to discuss this, too often their eyes glaze over, and I can see that I am losing them. It’s no secret that employee benefits costs are rising; both the statistics and my anecdotal experience confirm this. Here's an article by a OneDigital market analyst about skyrocketing employer healthcare costs. When I ask employers, "What are you doing to help control those cost increases?” they either share how politics play a role, their satisfaction with their current broker, or how they shop for insurance every year and try to get the best price possible.

There are some aspects of our businesses that we understand better than others. It is easy to acquiesce to the things we don't understand and to chalk those up to "the cost of doing business."

Without a comprehensive oversight of your benefit plans, trends and the risk factors your employees pose to the cost of your insurance, you could be one issue, claim or renewal away from having these programs erase your hard-earned margin improvement.

Consider the following best practices from New River Hardwoods' David Baily and Wayne Law's "Factors for Success" session:

  • Project design thoroughly analyzed before implementation with vendors
  • Experienced installer with knowledge of equipment
  • Equipment manufacturers on-site at start-up
  • Employee buy-in

Ask yourself if you are using these same best practices as a benchmark when evaluating employee benefits.

Evaluating Your Strategy

To pinpoint any areas for improvement and determine where your organization may be falling short in its current strategy, spend some time answering the following six questions:

  1. When you approach employee benefits do you have a two to five-year plan and committed budget numbers for those years?
  2. How are you fully analyzing your current plan against other plans before implementing with vendors (carriers)?
  3. Do you have an experienced broker with knowledge of your industry, your market, carriers and trends?
  4. Do you have brokers, carriers and invested partners on-site to meet your employees and help them select the right plans for their individual needs?
  5. Do you have employee buy-in? Or are you selecting plans primarily based on premium and what you think employees might want?
  6. Once you have plans in place, how are you controlling the cost of those plans through wellness programs, claims analysis and review and alternative products to reduce costs?

While it may seem difficult to pinpoint some answers, there are other ways to help you make these decisions. Market trends can help to predict certain aspects and a broker partner will help you understand external factors that could impact your rates. Finally, examining the risk factors in your workforce is critical.

Improving your margins is relevant to all cost centers of your organization, and by applying some of the same "factors of success" to your evaluation, you can properly maximize your spend in all aspects of your business. To learn more about how a smarter employee benefits plan design can help improve your margins, contact your OneDigital representative today.

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