You are currently browsing the Peak Performance Associates weblog archives for May, 2009.
18. May 2009 by Dan Trudell.
In my last post, I suggested several “price” related ideas to keep you and your business financially solid during these challenging times. These focused on the revenue side of the equation; raise prices, negotiate multiyear contracts and mine existing customers.
In part 2, I want to suggest three more methods you can easily implement to improve financial performance and cash flow. The old adage that “Cash is King” has never been truer!
Strategy 4- Accelerate receivables
If you currently offer open billing terms to your customers and client’s, implement a “pay on completion” discount. A 2% incentive for cash on completion can be beneficial for both you and the client. You don’t need to send invoices, make collection calls and most important, you have cash NOW! Your internal bookkeeping workload is reduced as well as costs. The client saves money and must ultimately pay anyway. Set your business up to accept credit card payments if you haven’t done so. This can also aid in accelerating the cash to cash cycle!
Strategy 5- Reduce ASSETS
Most businesses accumulate an excess of idle, infrequently used assets, whether it is parts, supplies or equipment. All of this may have been useful in the past. However, if it is parts and supplies that have not “turned” in the past 6-12 months, consider taking a deep discount to move it out. If it is capital equipment, can it be sold or scrapped? Auctions, Craigslist and other surplus outlets abound for disposal of these items. In my experience, these assets will just continue to devalue over time while taking up space and time to inventory. The “rainy day” when that item is needed often never arrives. Having a portion of the value back in cash reduces the need for borrowed funds and simplifies life in general.
Strategy 6- Improve and document work processes
Are your best people able to do more work and generate more billable revenue? If so, do you know what they are doing differently to get work performed more efficiently? The easiest way to increase profitability and cash flow is to document best practices. Train others on those best practices and insist that they implement them all the time. Create a checklist, either paper or electronic, of process steps for the most common jobs or projects and have it completed by for each job. This can also serve as a quality monitoring system to verify for the customer that the work contracted for was fully completed. Productivity of the rest of the group should improve close to the level of your best performers within several months of implementation.
Conclusion
Sustaining and growing your business in good times and bad is always a challenge. If you work on both enhancing revenue, improving productivity and increasing cash flow, you can thrive in the tough times and move out aggressively in the market when the economy recovers. Knowing what to do is the easy part. It takes leadership to sell these improvements to your people and your customers/clients. The question remains the same; do you want to stay in business? If so, be bold and take action. If not, well, the choice is yours!
Posted in Sales, Growth Strategies, Financal Acumen, Business Growh, Business Acumen | No Comments »
11. May 2009 by Dan Trudell.
If you listen to the media, one could conclude that the entire country has ceased to function and without Government coming to “rescue” us, we will all be paupers in short order.
I disagree and regardless of whether the government has any direct impact on you and your business, I want to share three growth strategies that every organization can consider to not only survive, but thrive during and after the current economic turmoil.
Strategy 1- Raise Prices
While the temptation in tough times is to succumb to the demands for lower prices to retain customers and business, DO NOT DO IT! Let’s do the math to see why it is a fast track to disaster if you cut prices!
The calculations in the tables below show what happens under 3 different sets of conditions, a price reduction while maintaining a fixed dollar amount of profit, a price increase while maintaining that same amount of dollar profit and a price increase while maintaining the same number of jobs per year. Note that in all scenarios, the cost per job remains constant.
Discount Your Price
|
Price Change |
Revenue/ Job | Total Cost/Job | NetProfit /Job | Total # of Jobs/ year to Achieve Goal | Total Revenue/Year | Total Cost/Year | Company Profit Goal(Dollars) |
| Base | 1000 | 900 | 100 | 100 | 100,000 | 90,000 | 10,000 |
| - 2% | 980 | 900 | 80 | 125 | 122,500 | 112,500 | 10,000 |
| - 5% | 950 | 900 | 50 | 200 | 190,000 | 180,000 | 10,000 |
| - 10% | 900 | 900 | 0 | ??? | ??? | ??? | 0 |
This scenario shows what happens when prices are discounted from 2% to 10%. At a 2 % discount, this company must do 25 additional jobs to achieve the same $10,000 profit. At a 5% discount, a company must DOUBLE its job count to achieve the same profit and at a 10% discount, all profit is gone!
Increase your Price
Now, look at what happens when we institute a small price increase. In a tough economy, we may have fewer jobs; people may delay or cancel work they would normally have undertaken. However, you need to maintain the same profit level to pay all your obligations and stay in business.
|
Price Change |
Revenue/ Job | Total Cost/Job | Net Profit /Job | Total # of Jobs/ year to Achieve Goal | Total Revenue/Year | Total Cost /Year | Company Profit Goal(Dollars) |
| Base | 1000 | 900 | 100 | 100 | 100,000 | 90,000 | 10,000 |
| + 2% | 1020 | 900 | 120 | 83 | 84,660 | 74,700 | 9,960 |
| + 5% | 1050 | 900 | 150 | 67 | 70,350 | 60,300 | 10,050 |
| + 10% | 1100 | 900 | 200 | 50 | 55,000 | 45,000 | 10,000 |
In the table above, we show what happens when we modestly increase our fees by between 2% and 10%. Notice that with only a 2% fee increase, we can make the same net dollar profit with 17 FEWER jobs! With a 5% increase, we can make the same net profit doing 33 less jobs! So, if we anticipate less volume of business, we can maintain our necessary level of profitability by slightly increasing our prices on the business we do have!
Increase Price & Maintain the same number of jobs
Finally, let’s see what can occur when we are able to maintain the volume of work AND increase our fees. This scenario indicates that when the number of jobs remains steady, revenue will go up slightly, but profitability is greatly improved.
|
Price Change |
Revenue/ Job | Total Cost/Job | Net Profit /Job | Total # of Jobs/ year to Achieve Goal | Total Revenue/Year | Total Cost/Year | Company Profit Goal(Dollars) |
| Base | 1000 | 900 | 100 | 100 | 100,000 | 90,000 | 10,000 |
| + 2% | 1020 | 900 | 120 | 100 | 102,000 | 90.000 | 12,000 |
| + 5% | 1050 | 900 | 150 | 100 | 105,000 | 90,000 | 15,000 |
| + 10% | 1100 | 900 | 200 | 100 | 110,000 | 90,000 | 20,000 |
The real question you have to ask yourself is “Do I want to be in business when the economy turns around?” If yes, implement a small price increase, DO NOT DISCOUNT!
Strategy 2- Offer Multi-Year Bundles
If your business is one where clients need your services periodically, whether it is monthly, quarterly or annually, offer an incentive to commit to a multiyear agreement. Craft a bundle of “extra value added” services that will be included at no cost in exchange for a 3 year agreement for example. Most of us have other things we can do that have very low cost but high perceived value to the customers and clients. What you gain is a customer for the term of the agreement. Further, that is a customer that is not subject to being enticed by offers from your competition.
Strategy 3- Mine Your Existing Customers
One of the often overlooked areas by many service businesses is making past and current customers aware of NEW Technologies that you may have that others can’t or don’t have available. Ask yourself, what new products or services do we now offer that could save money or time? You know (or should know) what is happening in your field or industry. That’s why your customers trust and rely on your company. Reaching out to them with new services and products that can impact their life, finances or productivity can lead to more business or at least retaining their business.
Further, when you reach out, it provides an opportunity to ask if there are others they know that should know you and the quality of service you provide. This is sometimes known as asking for referrals!
Conclusion
Often when times get tough, we are tempted to overreact without thinking about the possible unintended consequences of our actions. Discounting prices to drive revenue is a fool’s game and has put many a company in deep financial difficulty or out of business. Multi-year contracts are a great way to carry a base of revenue over from one year to the next and stabilize your revenue streams. It further hinders your competitors’ ability to grow. And finally, nurture those existing customers and ask them for referrals.
If you put into practice these three simple strategies, you will not only survive these tough times, but when the economy rebounds, you will be a much stronger company than before!
Dan Trudell is President of Peak Performance Associates, Inc. Since 1990, Peak Performance Associates has aligned people strategy with the business strategy of client companies. For more information on how Peak Performance Associates can help implement growth strategies in your business, please contact Dan Trudell at 608-835-9288 or dant@peakperform.net.
Posted in Sales, Sales Management, Growth Strategies, Business Growh | No Comments »
4. May 2009 by Monica Le Grand Trudell & Dan Trudell.
As we write this article, it is baseball season. Imagine, if you will, a team of excellent, talented players; athletic and skilled at their respective positions. One might predict much success based upon that scenario. But further imagine that while they are skilled in the basics, hitting, running, etc., they don’t have a solid understanding of the rules of the game! Would that change your outlook for how successful this team will be in season play?
We find the same scenario occurring in business after business today; highly skilled and talented “players” in each area, but without the critical understanding of the fundamental rules of business. Those fundamentals include a basic knowledge of the “cash to cash” cycle, the basics of operational decisions on the financial success of the business and how important it is to understand how each functional area or department “fits” together for organizational growth.
And in today’s difficult economy, it becomes more important than ever that each and every person in your company understands exactly how your business makes money, how what they do on a daily basis, contributes to the bottom line and how the decisions they make impacts the profitability of the company, keeping the company strong enough to weather difficult times.
Here are several questions to ask yourself to determine if developing the business acumen of your employees would be beneficial to your business:
1- Are you asking your people to do more with less?
2- Is competition getting tougher?
3- Are key decisions being made at lower levels in the company?
If so, do the frontline folks in each department or functional area that you depend upon to make the best decisions for both the company and the customer have a solid understanding of the foundational business basics to make optimal choices? Do they have strong Business and Financial acumen?
Many of our clients have concluded that they have been putting those critical frontline folks at a disadvantage. They realize they have neglected to provide them with the knowledge to make good business decisions. Manufacturing RealityTM: Ca$h FlowTM addresses that missing component. By working in teams, running their simulated manufacturing business for 3 years, they make decisions and very quickly experience the impact of those decisions both operationally and financially. They must manage their cash, make tough choices about how to invest their limited resources and quickly learn that “there is only so much money”! Through discussion and debrief, they are able to make the connections to how the decisions they make on a daily basis impacts the financial success of your company.
Often, we are asked how a company can justify the investment in this type of learning exercise. I ask in response “What is the cost of sub standard or downright wrong decisions on a weekly, monthly or quarterly basis?” What would it mean to a company if your frontline workforce had a better understanding of how your company’s operations and their decisions improved the cash to cash cycle, why it is important to control overtime, how much waste impacts bottom line performance, etc. The answer to those questions in dollar terms usually far outweighs the investment in your people. The simulation experience will drive behavior change and enhance the quality of the hundreds of decisions that are made every day. Ultimately, the cumulative effect of all those decisions drives improved financial performance.
And isn’t that the goal?
Dan Trudell and Monica Le Grand Trudell are partners in Peak Performance Associates, Inc. Since 1990, Peak Performance Associates has aligned the people strategy with the business strategy of client companies. For more information on Manufacturing RealityTM: Ca$h FlowTM or how we can assist you with aligning your people strategy with your company strategy, please contact Dan Trudell at 608-835-9288 or dant@peakperform.net.
Posted in Talent Management, Development, Financal Acumen, Business Growh, Business Acumen | No Comments »