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Sachen Gudka: How I improve the profitability of my business

ENTERPRISE
By Peter Muiruri | May 12th 2021
Sachen Gudka. [Courtesy]

His career began as a chartered accountant with PricewaterhouseCoopers in London. Sachen Gudka would then move back to Kenya in 1995 when his family acquired The Rodwell Press Limited in Mombasa.

He would help run the business which would lead to them opening another plant in Nairobi in 2000. In 2005, the business would merge with one of India’s largest labels company; the Interlabels.

This joint venture would then be acquired by a Norwegian multinational labels company called Skanem, which would rebrand to Skanem Interlabels Nairobi.

Through several mergers and joint ventures, the family controls a large market share in offset and digital printing, packaging and the manufacture of thermal transfer ribbons in Kenya.

Gudka is the CEO of Skanem Interlabels Nairobi Limited and is the immediate former chair of the Kenya Association of Manufacturers. He shares some of his tried and tested tips on how to drive up profits in the business.

1. Grow market share to rack up profits 

In order to grow market share, you need to be aware of the size of the market and the segmentation within that market. This will help you to be aware of the segments that are growing fast.  This information will also give you an awareness of how competitive the landscape is. With that information, perform constant reviews of the strategy you need to take, concrete objectives and timelines that will help grow the market share. For example, if you need to deploy new machinery or technology, you must be aware of global market trends and an assessment of the skill sets available locally. Finally, the execution of strategy is key. Sadly, most strategy papers, although very noble, tend to gather dust because people do not want to do the heavy lifting in terms of implementing the concrete plans to grow market share within their industry. Apart from organic growth, however, mergers and acquisitions have helped us to grow our market share. 

2. Determine the right price point to drive up profits

To keep prices at a level that makes the business profitable, it is important to understand your true costs. Wrong pricing can drive down profitability and contribute to business losses.   

Finding the right price point starts with a careful, monthly review of management accounts. The exercise identifies whether things are going according to budget and to identify variances. If the gross profit margins are dropping even by a single percentage point, this needs further investigation. Recently, there has been a significant margin compression in most sectors, with major cost inflation coming through global commodity price increases. However, local businesses were not able to pass on the price increases to consumers and customers to current economic constraints. This is what has led to profits declining for most businesses.

3. Reduce operational costs

Review every single cost line, from materials, repairs to payroll. Investigate any significant variances to your budget. A pragmatic management team must not hesitate to act swiftly to correct any course that will leak out profits.

4.  Know when to diversify your products

An entrepreneur should consider expanding the product lines particularly when some products are about to reach their maturity phase. Maturity phase is when sales growth has started to slow down, and the product has already reached widespread acceptance in the market. Customers prefer innovative products and services. To fulfil their expectations, always provide them what they need. If they consider you a trusted and valued supplier, they will always give you an opportunity, and that translates to more profits. 

5.Have the right team to drive profits

The right team helps you to plan and execute your business strategy. These should be people who understand your company goals and objectives. Apart from providing incentives, put in place measures to monitor their goals and accountability to ensure everyone is moving in the same direction. In short, these are my three rules for recruiting good people: get the right people on the bus, get the right people in the right seats on the bus, and get the wrong people off the bus. 

6. To give or not to give incentives?

Special offers form part of a retailer’s offering to attract more consumers. However, brand owners should be careful about being constantly on promotions. They should be considered carefully as part of the company’s marketing effort but should not be a year-round phenomenon since they can erode your profit margins significantly over time. While special offers may buy the brand some temporary market share, they may come at a considerable cost to the business.   

7.How to increase your customer base 

We have always had ongoing customer relationship management for current clients. However, all our marketing efforts are always aimed at attracting new customers, and retaining those already in our business. More importantly, never underestimate that one-time customer. A strong marketing effort should help you towards achieving both objectives. 

8.Reinvest profits back in the business but…

While reinvestment of profits back into the business is important, having a dividend policy is also vital, so that shareholders can be rewarded on a regular basis. A constant scan and review of the cost base is essential in all businesses of all sizes, and should be undertaken on a regular basis to ensure competitiveness is maintained, otherwise, profit margins will start to suffer. 

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