The Power of One is a profit improvement tool that has been developed by Verne Harnish and the team at Gazelles and is explained in his book ‘Scaling Up’.
The seven main financial levers available to improve cash and returns in any business are:
- Price: You can increase the price of your goods or services.
- Volume: You can sell more units at the same price.
- Cost of goods sold/direct costs: You can reduce the price you pay for your raw materials and direct labour.
- Operating expenses: You can reduce your operating costs.
- Accounts receivable: You can collect from your debtors faster.
- Inventory/Work in Progress: You can reduce the amount of stock you have on hand, for example higher stock turnover/’Just in Time Manufacturing’.
- Accounts payable: You can slow down the payment of creditors thereby saving interest on an overdraft or bank borrowings that would otherwise have been necessary.
The Power of One is a model that shows the benefit to cash and profits of a 1% change in one of the seven financial levers. The aim is to ideally improve all seven financial levers by more than 1% each. The extra cash and profits generated can be impressive and rewarding.