Make Your Business Plan Work

As I wrap up this quick series, I want to talk about how to make Business Plans work for you.  Many times, people write them and then stuff them in a drawer.  This means that the exercise has some value but is not fully realized.

The way to make this activity a part of your business is through the metrics that we talked about.  Revenue and Profit are two metrics that are important for every business.  Beyond those, there are 2 - 3 numbers that you want to track.  When I was with AFC, one of those numbers was the number of DSL ports that we sold each quarter.  We were in the process of converting our business from being primarily POTS (Plain Old Telephone Service) to being primarily broadband DSL.  So, we wanted to be clear our growth in that area.  When I was with Edgewave, we wanted to move into larger customers.  So average customer size was a metric that we tracked.  Note, that neither of these numbers is directly Financial.  Even better than those result numbers was one number we used at AFC.  That number was the dollar value of RFPs that we received.  We had a pretty good view of our market share.  This meant we could project our revenue and track our market share.

How do you do this for yourself?  My best suggestion is not to make these numbers 3-level much like a Red Light.  Green is good, Yellow is warning, and Red is danger.  Using this 3-level system, you know where to focus your attention and be prepared to adjust your actions.  One downside is that there will be a desire to adjust the level to be Green all the time.  The idea of this system is not to change the goal.  The idea is to change the actions that you take to ensure you make your goal.  Back to one of our metrics at AFC, Salespeople were given targets that meant we would make our DSL expansion goals.  What we found was that there were challenges in the retrofit of existing systems to support DSL.  We created upgrade packages to simplify these retrofits.  From there our numbers took off.  Without setting those goals, we may have never known what the problems were.

One way to ensure you are not changing your goals is to engage an outside advisor.  I offer this as a service, but more traditionally this is the role of a Board of Directors.  The idea is that you have one or more people interested in your success but not invested in your plan.  That means that they can remain objective as the plan progresses.  This outside perspective can make a difference.  Many companies fall into the trap of believing their own ideas without challenge.  By having a constructive critical analysis, you can sharpen your views on how to make your plans more effective.  If you ever want this type of service, feel free to contact me.

Have a great day!

Jim Sackman

Focal Point Business Coaching

Business Coaching, Leadership Training, Sales Training, Strategic Planning

Change Your Business - Change Your Life!

Scaling Your Business

When we look at costs and processes, we need to examine them in the context of Scaling. That means what is the best way to spend money to grow revenue. Is it to introduce new products and services? How about expanding your Marketing? Those are both organic ways of growing a business. Inorganic growth (buying another company) is another way to grow. In some ways, it is more efficient than organic. In some ways not as efficient.

In any case, this is where we need to look objectively about what causes revenue growth. There are pros and cons to almost any of the mechanisms. For example, I often have many people tell me that they close a very high percentage of people that they actually talk to about what they do. That says to me that the best way to grow is to get more people to become active prospects. In another case, I have had an owner talk to me about having to be at every job site. That means that they needed an operations person to run some or all sites. That way the owner could spend more time developing new business.

The right way to look at this is through the lens of Critical Constraints. What are the things that are holding back your growth? Is it skill, time, money, or something else? By honestly answering that question, you can begin to put a plan together to grow your business. The thing is that fixing almost any of those items will require resources, particularly money.

As you develop a plan for the next year, you need to create a baseline which is a business that has no change to it. Once you have the baseline you can "model in" the changes that you want. In the work that I do, we use Excel and variables that allow us to evaluate the changes and the new plan separately from the baseline. This can also help you define metrics for this new activity. If you decide you need to improve your advertising, how will you know if the money you are spending is worth it?

It is those what-if scenarios that make a business plan or an annual plan a living document. By looking at these plans, metrics for the business can be determined. By reviewing these metrics and adjusting the plan to improve them creates an action plan to improve the company.

Jim Sackman

Focal Point Business Coaching

Business Coaching, Leadership Training, Sales Training, Strategic Planning

Change Your Business - Change Your Life!

How to Make Employees Work for You!

So, yes I hope it is a funny title and that would help you click on this article.  But this is a serious topic as most companies spend about 70% of their Operating Expenses directly related to headcount.  That means getting the most out of your employees is an utmost priority for businesses.  To that end, people expend a lot of time thinking about leadership, morale, and retention.  The one thing that they don't articulate is:  "How do I know if an employee is successful?"

To be very specific here, I am talking about objective measures of performance.  This is well-known within at least one area, and that is Sales.  Salespeople either meet their quota or they don't.  The productivity of a Salesperson is determined by at least that result.  There are other measures that can be applied like Gross Margin or Product Mix.  All of these measures are designed to make the Business obtain their goals.  If everyone in Sales meets quota, then the company should meet its Business Plan.  If it does not, this is a failure of Planning not a failure of the employees.

The problem comes in for non-Sales employees.  Most people have a much more subjective way of judging employee performance.  They judge people that fit in with the company culture and do not cause issues.  What they don't do is think through how the work of any given employee relates to the bottom line.  I felt that pain myself when I was the CTO at AFC.  I was asked to show how my work related to the finances of the company.  I spent the vast bulk of my time in those days working on Corporate and Technology Planning.  I found it really hard to create that set of metrics.  We eventually came up with 3 "metrics":  Return on New Product Development, Cost Per Port Analysis, and Number of Speaking Engagements.

Of those 3, the Return on New Product Development was the most challenging to measure.  Some things were done to maintain a large customer with little direct revenue.  The thing is that even then, there is a need to minimize upfront costs in those examples.  If you are not going to sell many of the items, then Development Cost ends up being more important than Product Cost.  As these activities get added in with everything else, it is just part of an ongoing average.  Even a long-term planner can demonstrate a direct financial impact.

Have a great day!

Jim Sackman

Focal Point Business Coaching

Business Coaching, Leadership Training, Sales Training, Strategic Planning

Change Your Business - Change Your Life!

The Expense Problem

We have talked quite a bit about the Revenue Side of a Business Plan. I want to cover part of the expense side of a business today and that is the Operational Expense or OPEX. OPEX generally represents the fixed cost of a business. This means all the costs that a business would have if it did not sell anything (NOTE: I am using this as a simplification, because yes this is not the precise definition but works very well for small businesses). This would include rent, utilities, most salaries, insurance, and similar items. Cost of Goods Sold (COGS) is the other kind of expense and that is generally reserved for the costs associated with delivering services or the costs of making products. There can be some tricky overlaps, but things will be okay if you are consistent with the way you are accounting for these costs.

The first problem is inflation. Every year the costs to run a business tend to go up. This might be the cost of advertising or health insurance. But these costs can be just about anything. When I was at AFC, we estimated these costs to go up about 7% a year. This leads to a loss of profit year-over-year without some changes. The easiest change is to increase revenue to cover these cost increases. However, there may be other ways that can be used to lower these costs. These will be covered in a separate post but become many of the initiatives that happen within a company.

The second problem is one of accounting. As I said about the challenges with defining OPEX and COGS above, there are other problems in evaluating costs in small business. The one that is most likely is the personal costs that are run through the business. Some of these are widespread. An example would be the expense of the family’s cell phone plan as an expense to the business. There are more difficult problems as well. For example, I was evaluating a company in southern California where the owner ran a $190K "Tennant Improvement" for his "Home Office" through his business. Because of this (and other expenses), the owner can dramatically underpay himself. All of this is good for tax purposes but can make objective analysis of the business difficult.

So, we will be spending time looking at expenses and how they can be looked at separately and together with the Revenue side of business.

Have a great day!

Jim Sackman

Focal Point Business Coaching

Business Coaching, Leadership Training, Sales Training, Strategic Planning

Change Your Business - Change Your Life!

Other Revenue Growth Mechanisms

We have looked at some mechanisms to understand Marketing and understanding the finances of attracting customers.  Now we want to look at the other part of the equation or the Life Value of a Customer (LVC).  We want to look at increasing the value of a customer by increasing Revenue through increased average Sales or increase the frequency of Sales.

To do this, I want to focus first on a Hair Salon as an example.  One of my first clients was a Salon and one thing that I found was that the Salon made its real money from Color Treatments.  This leads to a periodic visit by customers to the Salon.  One thing that can directly impact Revenue is the rebooking of appointments at 4 weeks instead of 6 weeks.  There are several ways to impact this.  For example, the cashier function can ask to book appointments at the exit and suggest a 4-week interval.  There is also the choice of a "Cut of a Month Club".  This is a discount card that can be used to encourage use on a more regular basis.

This can be enhanced by looking at the sizing of the products that are sold.  Since Product Sales are a great upside, the Salon wants clients to purchase each time.  The idea here is to stock sizes of products that are about one month's worth of product.  Running out of products can provide a prompting to book another hair appointment.  There are other reminders that can be done by E-mail, Telephone, or Direct Mail.  All of these ways can be used to decrease the time between appointments.

Here is one last idea for this example.  The most important thing is to get new clients to become repeat clients.  They are the most important prospects for becoming new repeat clients.  The question is what the Salon does to cultivate this new relationship?  If there was ever a time for a Salon to give a discount, it is to that first-time visitor.  But there are many ways to cultivate the client.  For example, send a hand-written note to them thanking them for their visit.  Any personalized touch can be an excellent way of improving turning that one-time client to a repeat client.

Now, why did I focus on creating repeat clients?  Prospects that have already done business with you have the highest conversion rate.  These prospects are better than referrals.  Think long and hard about how to convert customers into repeat customers.

 

Jim Sackman
Focal Point Business Coaching
Business Coaching, Leadership Training, Sales Training, Strategic Planning

Change Your Business - Change Your Life!

 

How does Customer Count Impacts a Business?

 

Last time, I posted about the number of Customers that you need to have a successful Business.  This week I want to show how this greatly impacts a couple of parts of a company. As I have said, most any type of company can be made to work.  The question is what you must do is think about how to make it work.

The first metric to think about in this mode is the "Cost of Customer Acquisition" (COCA).  The way to figure this out is to divide the spend on Sales and Marketing by the number of new clients.  If you spend, $10,000 on Sales and Marketing and have 100 Customers, then your COCA is $100.  This number is important because it defines how much value each customer costs you incrementally.  If you are selling a haircut for $20, then $100 COCA is a bad number.  If you are selling Luxury Yachts, $100 is an awesome Cost of Customer Acquisition.  A good COCA is very dependent on the business.  But think about it.  If you need lots of customers, then COCA needs to be very efficient.  Many customers mean that you will be acquiring them often.  Processes that are repeated regularly, the more efficient the better.

Another aspect of customer count is Billing.  The more customers the more important that is.  Many businesses use Merchant Banks to accept Credit Cards as the primary form of payment.  For example, a Hair Salon may have 100 customers per styling station per month.  With an average spend of (for example) $100, that means that there could $10,000 of transactions.  Each 1% of Merchant banking fees is $100 in this example.  Credit Cards make is simple to receive cash quickly and can isolate businesses from many payment issues.  However, Credit Cards are a relatively expensive way of collecting payments.  There is a tradeoff between the number of invoices to issue, the timing of payments, and the method of payment.  All of this depends on the number of customers that a business has.

These are two of several processes inside a business that are impacted by customer count.  All these processes need to be accounted for in the Business Plan as it is developed.

Jim Sackman
Focal Point Business Coaching
Business Coaching, Leadership Training, Sales Training, Strategic Planning

Change Your Business - Change Your Life!