How Mike Roberts Thinks About Cost Optimization for Sustainable Growth

How Mike Roberts Thinks About Cost Optimization for Sustainable Growth

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[: 00:00:00

Welcome & intro

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Michael Roberts: So if you drive a dollar of additional revenue to an organization,

how much of that flows through to the bottom line? Small percentage. 10, 20%, if you

save money in non-core expense areas. That flows typically a hundred percent to the bottom line. So if you save a dollar, you typically have to make four, five times that amount to flow the same amount to the bottom line by revenue generation. If you're missing the boat

in cost savings, you're missing a way to really drive profitability, net operating income, really important aspects to your business.

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Kenny Lange: welcome to the How Leaders Think podcast, a show that transforms you by renewing your mind and giving you new ways to think. I am your host Kenny Lang, and with me today is the Mike Roberts. He has 20 years of top tier, top like top shelf, like a margarita. I. P and l management and oversight.

nique perspective on running [: 00:01:00

And this is what he does with the ERA group. Welcome to the show,

Mike.

Michael Roberts: Thank you, Kenny. Great introduction. I appreciate that.

Kenny Lange: Thanks. I like, I like to add some energy to it. It just really build it all up and create tension that you have to live up to. Mike, what is on your mind?

Michael Roberts: Yeah, I was excited to, to join today and just kind of have a chance to share a little bit about what we do with, with all of your listeners. And, you know, I think there's a lot of value

there, right? When it comes to, um, we all have heard a lot of conversation about tariffs, heard a lot of conversation about profit margin shrinking inflation, right?

So I think it speaks to so many relevant things right now. So, was excited to dive in.

Kenny Lange: Yeah. [: 00:02:00

Mike's background & journey

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Kenny Lange: 'cause so often we can't control the top line. Of revenue or donations, but expenses usually are, we have a lot more agency over what those are or how big they are, how much they're taking from us, or, uh, their impact. So talk to us a little bit about you know, what is that unique focus that all of you at the, at the era group have and why is it.

Different from how other people are thinking about controlling costs and profits.

Michael Roberts: Yeah. Yeah. That's a great, that's a great segue. You know, I think going back to your initial point there between top line revenue and expenses, right?

So [: 00:03:00

should always be looking to drive revenue, and you should always be looking to control costs by doing those two things simultaneously, continuously, you have the best profit margin available, right?

But, but what do people do? In reality right now we're focusing on revenue generation. Times get tough, they switch to a cost focus, right? And there's, there's very rarely that, that dual strategy that's happening simultaneously all the time. But what I

want to point out. Is that the impact of top line revenue versus the impact of cost savings in non-core areas?

The importance of P&L management

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Michael Roberts: Right? So if you drive a dollar of additional revenue to an organization,

how much of that flows through to the bottom line? Many times? Small percentage. 10, 20%, right? If you

ures, that flows typically a [: 00:04:00

in cost savings, you're missing a way to really drive profitability, net operating income, really important aspects to your business.

So that's, that's kind of where I wanted to speak to there.

Kenny Lange: Yeah, so that's wild that, you know. Because I, I want to maybe get into like, focus and, and where we apply energy. Um, especially when we think of when people start thinking of costs or expenditures, payroll, typically largest one on antibodies p and l or balance sheet and.

o much of that comes down to [: 00:05:00

What are we paying attention to? Where are we applying the energy of the organization? We have this collective energy of all these people who are showing up to work, you know, virtually or in an office. And we could either get a little bit back or for the same amount of energy applied. It sounds like we could get like four or five times the amount back if we start pointing that energy in a different direction.

Is that fair to say?

Michael Roberts: Yeah. I, I think, I think that's a fair, a fair statement. And you know, another way of looking at the value there is, right? With someone like, and this is by no mail, I'm not here to pitch error group, right? Or what we do. But what's important about what a cost consultant, like error group does

your core team, right? Your [: 00:06:00

Initiatives, their, the operations, right? Scaling the business, whatever they're focused on.

And then when you bring

in a third party to do something like cost consulting, they're doing all that work beside your team, right?

So

you, you freed up your internal resources, you're getting cost savings. So that's where the, the benefits start to compound, right?

Kenny Lange: Gotcha. Like, I, I mean, not that you and I do the exact same thing. We, I think we have complimentary skill sets or, or businesses, but I get some of the same stuff to where I, I become a third party. I'm not beholden to the culture, the ways we've always done things. I, I don't have any of those burdens and sometimes I can.

you are, what you wanna do, [: 00:07:00

Common efficiency blind spots

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Kenny Lange: I, I borrow it from time to time, but it's, it's really tough to read the label from inside the

jar.

But if we have an outside consultant who's showing us these things, but also just if we can start to change how people think about, can I just chase more, I think that's what, um, Jim Collins said led to the downfall of many companies, and I've forgotten which book, but it was like the undisciplined pursuit of more.

It's just chasing more revenue, more donations, more this bigger, bigger, bigger, bigger. Instead of and that's fine. You want, like you said, a both and, but if we have to pick one, the return on our thinking of like, how could we do this more efficiently? Like we've gotten to a certain size.

Maybe we need to make it better before we make it bigger.

zation where we come into an [: 00:08:00

So if

no one has any

idea where contracts are, what's happening when we're getting invoices on a monthly basis, right?

How do we audit the invoices and make sure the intra the invoices are matching contractual terms if we don't even know where contracts are, right? So then what happens is. You have leakage, right? We don't know the terms of the contract. We're not renegotiating them. They're auto-renewing at a five, seven, 10% increase every year. So, hey, maybe you did a great job back when you started this agreement,

but over time you get outta line with the market,

and invoices are getting paid by accounts payable, with just whatever comes across their desk gets paid and there's no audit happening. So those

autopilot without really any [: 00:09:00

small and midsize businesses, I'd say five, 10 million on the low end to about 250 million, right? We see this consistently.

Kenny Lange: Percentages. Like someone may be listening in here like 10, 20%. They're like, yeah, those, those aren't giant numbers. But could you, could you ground what those percentages mean in, in real terms? Like in that, that five to two 50, like

what does that mean in real dollars and cents for an

organization? cause I think that may

drive it home.

Michael Roberts: So if you just let's look at a small organization, a $10 million organization.

So

Non-core savings opportunities

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Michael Roberts: what we see consistently is 20% of top line revenue. Is reviewable, right? So about $2 million on a $10 million organization is reviewable spend. So supplier based expenditures, non-core

reviewable spend, these kind of things, supplier based contracts, repeatable services.

% reviewable [: 00:10:00

what the

profit margin would be in a $10 million organization, probably in the million range, right? 2 million.

So if you were to add $400,000 to that profit margin, right?

In just bottom line increase, what's the impact of that? And that

scales up. So if you go to a hundred million dollar organization, that's 4 million, right? If you go to

200 million, that's

8 million, right? So that, that's about what we see.

Kenny Lange: Which is insane. If you think about it, because oftentimes when we think about like bolstering, uh, our profit margin year over year, quarter over quarter or anything like that is we're thinking of like. How much more do we need to do to reach some, reach, some sort of like terminal velocity of like, okay, now we've hit this and now we get economies of scale and we get all these things.

rt to reach some mile marker [: 00:11:00

It's sort of, uh, the classic work. Smarter, not harder. Now, I

believe in both, but

Michael Roberts: right. I, I think That's well said, Kenny, and, and the answer is both right.

do both. Focus

on strategically growing your business and driving revenue in the, in the right way, right In a

methodical and strategic way. And also simultaneously look at running an efficient organization.

ut with a good contract, but [: 00:12:00

part-time or full-time CFO or, um, you might even have retained legal counsel or somebody who, who looks over contract negotiations and, and things like that.

What is the thinking that makes what the era group necessary? Because anytime I start to see a business pop up with a unique approach to things, it lets me know that there's a way of doing business that isn't commonly held that makes what they do necessary. So what, what is the thinking in the marketplace that makes what the ERA group does necessary?

, but there is a, there's a, [: 00:13:00

needed.

Michael Roberts: Yeah I think that's a good point too, Kenny, and it, you know, I think the value proposition is what spoke to me from the moment I joined Eric Group. So the value proposition is strictly, we come in, do the heavy lifting. Your team focuses on what you need to do internally on your priorities. We focus on reducing your supplier based expenditures, right? We save on, on average 20%. We share whatever savings we deliver. So we're 50, 50 point partners essentially with our

clients, right? What, whatever we save, the savings we deliver, they get the same return on the savings that we get, right? So we have the same interest as our clients, right?

And we share that over 36 months.

So that's a unique framework to a consulting engagement. There's no fixed

fee, there's no high level rate to get us started. Right? And then. We give you a manual

Advice for business owners

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say, here's how you, how you [: 00:14:00

and shared 50

50. So that's unique. And then the second part of the value proposition is if we explore cost savings, we find your organization's doing a great job. We simply just validate it and there's no fee for our work. So there's two outcomes to

our engagement. I. Savings that we share over a 36 month period,

or a validation to let you know how great you're doing in an individual area with no fee.

Right? So I think that value proposition is really unique and there's really no downside. I think that's what speaks to organizations.

aid, that high priced fee to [: 00:15:00

So it really does give off a, a sort of like a help first mentality or, or culture from what you're doing. But I guess maybe on, on my previous question of, of getting into. How are people getting themselves into this? Is it simply just the busyness of business? Is it a false belief that just autopilot in some areas is good?

You've, and you've used the term non-core, um, and I'd love for you to just maybe more specifically define that for people, but what is it that is, again, leading to. Oh, I need a different way. And that different way sounds like the era group and their approach. What's getting people into the trouble where they do need you, like is beyond just the actions.

Like what's the mentality,

Michael Roberts: Yeah,

Kenny Lange: that, that leads

Michael Roberts: I I get [: 00:16:00

C-suite time management tips

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Michael Roberts: direct costs. And what would direct costs be? It would be your labor, it would be, you know, if you have, if you're a manufacturer, any direct materials, right? So let's say you need to purchase steel and your primary component in your manufacturing process is steel. Well, most likely you're gonna be better at procuring that steel than someone else would be, because that's your core business, right? So

there's your direct costs. In those areas. And then there's your indirect costs, right? And those are ancillary services that are provided or needed within your business.

It could be waste services, it could be telephone, it could be it, it could be insurance, it could be, uh, supplies, consumables. It could be MRO, right? There's any number of indirect costs in the business, unique

to whatever your business is, right?

And you may be familiar with the parade principle, right?

% of your expenses as a [: 00:17:00

and they're moving the needle on those. And then there's the 20% of your business expenses, which are typically indirect. That. Don't get focused on, right? And although the summation of them is significant individually, there's 80% of your suppliers in that 20% of expense line item,

right? So in your top 80% of expenses, you have 20% or less of your suppliers. In your bottom 20%, you have 80% or more of as

far as volume, right? So

that's why

this gets overlooked. Because it's a

lot more difficult to move the needle in your indirect expense areas than it is in your direct expense areas. Right.

So that it is,

that's the reason I'd say.

: that I, that, that makes a [: 00:18:00

Like when I'm, we're building an org chart, I, we're looking at like, yeah. Sales and marketing of course. Uh, a delivery and services. Yeah, of course we gotta, we gotta deliver on what we just sold. And then it's like junk drawer of administrative, hr, legal, finance, like the backbone of what makes the business run.

, office lease and furniture [: 00:19:00

Nobody does that. They're buying steel and they're making stuff and they're reselling it. And they know that aspect, like you said, the direct sides of their business. I. Uh, I would talk to, when I was running an agency, um, I would talk to other owners that they're like, man, I'm just like, I can build websites in in my sleep.

Building high-margin business units

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Kenny Lange: I can create great marketing copy, do all this, but I gotta pay taxes. And I've got a, you know, I got some of these contractors that I gotta sub out to. I've got, you know, all, all these, you know, I gotta buy computers. And then there's software subscriptions. It's like. It's death by a thousand cuts. And it, and it sounds like what you're doing is saying, Hey, like we can, we got some band-aids for all these cuts to at least make 'em not sting quite so much.

Michael Roberts: Yeah. Let, let us, let us focus on the areas that you don't have time to focus on.

Kenny Lange: Or, and probably don't really derive joy from,

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Michael Roberts: You're right. I think you're right.

Kenny Lange: now, when does it make sense to 'cause I, I talk to a lot of fractional people and other consultants. And depending on the size of your organization, like when does it make sense to have somebody really own this separately from say like the owner or founder, whatever, CEO, like to own looking at all of these things and staying on top of it versus, you know what, just periodically we need to have someone like the error group come in.

Take a look that we need to hire, have an engagement or, or get a fractional or something like that. Like what's right during the, the lifecycle stages of, you know, whether it's for profit or nonprofit.

o what we do internally. But [: 00:21:00

this area of the business gets overlooked.

Kenny Lange: Gotcha. Um, and do they do. Are you usually working with say whoever

the, the most senior executive is, or do, do they maybe have someone who's sort of like part-time paying attention to this side of the business? Um, what's that configuration look like for

you?

Michael Roberts: Yeah, generally it's, it's two scenarios. It's either the, the business owner where CEO brings us in

or the CFO, right? And

invariably, in either situation, if there is a CFO, we end up with the CFO.

Kenny Lange: Gotcha. That, that would make a lot of sense. Now you've mentioned like the three phase approach that y'all take and you sort of have like this trailing like 36 months, like make sure not just that, hey, we got the savings, but we kept

Real-world success stories

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Kenny Lange: the savings. Which I think is huge.

ke, can your, um. Your work, [: 00:22:00

So we gotta, we gotta stay nimble. Um, as businesses, but it's been that way since the beginning of

time.

You know, something's always, uh, upset the apple cart, but what have you seen in your experience that allows companies to like they engage with you? Maybe they benefited, they had the trailing, 36 months or so.

Like what, what allows them to maybe just. Change the culture of how they view these non-core expenses so that it's not just, Hey, we had a great engagement with the error group and now we're gonna go and screw it up again for 36 more months. And then we're gonna bring in like that, that yo-yo cycle.

That

can [: 00:23:00

And then as soon as they're gone. You're like, it's like you got hit in the head with a frying pan on a cartoon and you totally forgot everything that just happened. So what are good companies doing to institutionalize these better ways of operating?

Michael Roberts: Yeah. So we generally see a few different scenarios. So one is, you know, part of our, we think responsibility

when we're engaged and when we're going through that post implementation phase, where we're gathering invoices, we're monitoring, we're making sure they're aligned with the contract and the savings that we expected.

Hey Kenny, we're gonna save you. A hundred thousand is actualized,

and the savings realization [: 00:24:00

So that's, that's the goal. Now, some organizations are gonna say, you know what? We don't want to take this on regardless of there's a knowledge transfer or not. This is not. An important priority for us, right? We see the savings that's valuable, but we don't wanna do this. This is something that in perpetuity, we want ERA to take on for us, right? That happens a considerable amount of time. Where, where after our 36 month period, they'll pay us a fee and we just stay on in perpetuity,

right?

Leadership lessons learned

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Michael Roberts: Monitor, right? So that also happens. Um, and then sometimes the third scenario is, we'll get done, our engagement, they'll wait three years and they come back and we do it again, right?

king about the marketing and [: 00:25:00

'cause inevitably, and I'm guilty of this 'cause I get shiny object Syndrome, and I'm sure you've met a lot of founders and owners with shiny object syndrome like this sounds like a great thing. Or my CEO peer group, everybody was buying this software and they said it was great, right? You sign up for this massive implementation, you're doing all these things and then you're like, I don't know if this is helping us as much as I thought it would.

Let's slim it down, and then you're like, yes I'm on the straight and narrow. And then inevitably you start to drift and you're adding features or add-ons and other subscriptions. So it sounds like there are some people who are given to that and it's just like how much they, they bloat.

uh, going into a ditch here [: 00:26:00

Michael Roberts: Sure. Yeah. Yeah.

Kenny Lange: I love that you talked about knowledge transfer. I was literally just on a, a client call before a coaching call in particular with someone who's, she stepped into the COO role and, and we're talking about what that means and, and what that looks like and, um.

Uh, some of it is about not just, Hey, here's some tools and I got tools for days. You know, I'm a nerd on these sort of things, but it's really about but one of the things we talked about is like, I, I don't ever want to create a dependency on me to explain things to the whole company. I will help, I will facilitate, maybe I'll be a catalyst, but I need them to internalize some of these tools and frameworks and ways of operating so that even if I'm not around or I get hit by a bus or whatever it is that continues.

just a mental model needs to [: 00:27:00

clients?

Michael Roberts: Yeah. Yeah, that's, that's a good question. And I think it's very specific to the category and to the project,

Actionable takeaways

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Michael Roberts: right? so so let's take a, you know, a freight project, for example, right? There's a unique set of factors that the. The freight team, the operations manager, who's ever in charge of, of shipping for that organization's gonna need to look at, right? And um. There's various things you can do, right? You can look at changing your packaging, right? You can look at it switching things from less than truckload to small package freight, right? If you're doing small package three fade through FedEx or UPS, can you go US Postal Service, right? So there's, there's unique set of circumstances that you can do for each category.

ctually move the need along. [: 00:28:00

negotiable, right? And what we also bring to the table is, hey, so we've been doing this for 30 years, since 19 92, 33 years at this point, right?

Closing thoughts & resources

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Michael Roberts: So we have 40,000 successful projects and benchmark data. So that's the other real value here. So we can come in and say,

Hey Kenny, here's what a benchmark rate is

for. This consumable supply for.

This right? And we can give them some starting points so they know, right? If they do want to go to market or go to RFP themselves, post ERA. Right here's, here's what the market should provide, right? Here's items within your contract that you can negotiate. You can negotiate your price escalations, you can negotiate, you can remove auto renews, right? So if you don't have to track 50,000 contracts on when they, and that's how they get you, right?

knowledge transfer here. To [: 00:29:00

help. them effectively manage their suppliers,

Kenny Lange: Gotcha. Yeah. In installing some processes that that'll keep them healthier, um, checks and balances. But also the, the thing that that struck me in what you just said was. them understand what things they actually can move the needle on, because it sounds like you're you're helping people that they don't know what they, what they don't

Michael Roberts: That's right. That's

Kenny Lange: right.

Like, oh, I didn't know though. I could negotiate that, or that that was optional, or something like that. Again. Just the inexperience of like, that it wasn't the, my core competency,

it was on the direct things, not the indirect things. But again, y'all have, you know, like you said, 33 years of 40,000 projects, like, you know, like, no, no, no.

This can be, you have agency here.

acation? It can stay on your [: 00:30:00

Right? Oh, no, I never knew that. Right. That can translate to it's those kind of things that individual specialists in that category, that's, that's all they do is waste 365 days a year can quickly share with you. Right. So it's, it's those

kind of things. Right.

Kenny Lange: Gotcha. Yeah, it's, it's again. There's death by a thousand cuts. But maybe we could make it 500 cuts.

Michael Roberts: That's right. Great.

Kenny Lange: I, I don't know if that'll sell, but Mike, this has been, uh, really, really helpful. And I think you you've given leaders a lot to, to think about and, um, and hopefully their wheels are spinning like mine are, but, um, let's say somebody's listening to this, they're like, oh my gosh, like.

better cost management. Cost [: 00:31:00

Michael Roberts: I would run. The first thing I would do is is run a 12 month accounts payable by supplier report. That's all. Run that report. Sit down, do a quick pivot table, right? Highlight the entire data table, pivot table . Search by supplier and total amount for the month. And just get familiarized with what suppliers you are paying, what on an annual basis.

How much and what suppliers and work top to bottom . And get familiar with that. Right start. That's what I would do. Start there. And then if you start at the top of the list, when's the last time we revisited these agreements? When's the last time we

reached out to

the top five or 10 suppliers?

d contracts in place, right? [: 00:32:00

most expensive way to manage a vendor is month to month or year to year, right? The longer your contract cycle would be, the more leverage you have to get better pricing, right?

So

just look at looking at your suppliers a little bit differently in that way.

Kenny Lange: Gotcha. That's really helpful. And so let's say somebody does that and, or maybe they're like, you know what? I just listening to this, I hear it's important, but it's making my teeth itch. Um, if somebody wanted to know more about you and the error group and said, Hey, this is just not a project I want to take on, I like what you said.

I wanna focus on the things I'm good at. If somebody wanted to know more or just had some follow up questions, maybe for you. Where would you send

them?

Michael Roberts: Yeah. Yeah. I would look at our website. Our website's a great place to just kind of. Check us out, see what we're doing. And there's some great case studies. Which

you can go on then. So

rt if you wanna look at some [: 00:33:00

And even if it's just some few basic questions, if you don't Actually want an engagement, if you just wanna have a conversation, let's have it. Or if you just want an analysis of your organization for no fee, and we can say, okay, here's where we think you should focus your efforts on. And whether that's you that focuses in those areas or us, it's irrelevant to us, but we can produce that for you anytime with no commitment or fee. So, um, I think those are all great ways to, to learn more.

Kenny Lange: Excellent. And we'll, we'll, uh, link up the website, uh, down in the show notes, um, as well as your, your LinkedIn profile and, and email so that way people can connect with you or maybe just follow along with any of the content that you're sharing out.

Um, Thank you so much. This was,

this was really, really helpful.

le while, you, you know, my, [: 00:34:00

If we get real deep off into it. Um, maybe you're thinking about auditing your budget now, which is. Probably what all of us should be going into um, your personal budget. But thank you so much. It means a lot. If you would like rate, review, subscribe, whatever the right button is on your platform of choice, I would greatly appreciate it.

And leave me a comment, let me know. What do you find helpful? What do you find not helpful? Uh, look, I just, uh, I enjoy having these conversations, but ultimately I need them to provide value for you. That's my goal, that's my aim. And so your input, your feedback will help me do. Just that. Um, you can also reach out to me, Kenny, at kenny lang.com.

If you'd rather just directly email me or reach out on LinkedIn, um, I'm usually hanging out there. But until next time, change the way you think. You'll change the way you lead. We'll see ya.

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