Situation: The CEO of a specialty service company is curious about whether they have the right internal focus to drive their business. Their internal focus statement is to the most competitive, most responsive company in their market with high profit per job. One school of thought calls this focus the Main Thing driving the company. Does your company have the right Main Thing or focus?
Advice from the CEOs:
- Look at the tie between your Main Thing and your financials.
- Determine an appropriate measure of efficiency – for example, billable hours per field worker per day.
- Look at cost per field worker versus efficiency.
- Ask what will generate the profit to grow to the level that the company has established as the revenue target.
- If you can boost the gross margin on services, this provides far more benefit than merely cutting expenses.
- Look for market niches that support higher prices without a parallel rise in either expense or risk exposure.
- Do leadership and staff have the right skills and talents to support growth objectives? What can be done to enhance skills and talents?
- Consider the following – By increasing efficiency and margins from 16% to 20% on $10 million of job revenue, the company can increase the operating margin by $400,000. If certain staff cannot work within a more efficient structure, you may want to move them to jobs that are less critical to the business. Having the right staff in the right seats is critically important to bottom line results.
- Look at the company’s customer selection criteria. Using the 80/20 rule – 20% of customers generate 80% of revenue and/or profits. How do you improve customer selection?
- Rank all customers on measures of profitability of their business, payment time, and most importantly future business potential. Focus on customers with the highest scores, and “fire” low scoring customers.
- Focus on cash flow: Look at early pay options or discounts to speed payment from large customers.
- Incorporate a schedule of values in all contracts as an addendum to prompt earlier payment.
- In proposals, include a payment schedule and finance the receivables through a factoring company – particularly in the case of slower paying or less desirable customers.