We touched on this topic briefly in our latest webinar, but I’d like to take a deeper dive into this topic. Many green industry businesses have ambitions to grow, or at least use their resources in an optimal way. You may be hiring someone for a sales role, increasing marketing spend, implementing a new CRM, purchasing an asset, etc. The goal is for these investments to result in a positive outcome, but how do you measure the effectiveness of your investment?
Lets start with revenue, and the revenue trends over time. Its important to note that all revenue is not created equal. What do I mean by this? A company can be growing in size, with top-line sales/revenue increasing, but profits may be remaining the same. In order to hold your team (or yourself) accountable for the investments that you make in your business, it would be beneficial for you to measure your efforts to the change in net profit levels. By measuring your efforts to revenue, you are not accounting for the efficiency that it takes to maintain healthy profit levels. As an example, lets take a look into three possible investments that you can make into your business:
1) Adding a sales employee: Increasing revenue is a must for an expert sales person, but now you know, revenue doesn’t tell the whole story. Below are two main points that are essential to ensure your sales person’s efforts are resulting in increased profit, not just increased revenue:
– Selling jobs at the right price to recoup all expenses (Direct & overhead expenses).
– Understands the specific jobs/contracts that the team can perform efficiently.
2) Adding equipment: not all revenue is created equal, right? Adding equipment may help you complete more work in a shorter amount of time, but does the depreciation expense and maintenance costs of the equipment lower your net profit levels too much? Consider all factors and costs that go into an equipment investment!
3) Increasing marketing & advertising spend: I don’t think companies spend enough on marketing, it’s a great opportunity, especially some of the online marketing methods. Gaining more jobs/contracts as a result of your marketing efforts is great, but how efficiently is your direct labor and administrative labor performing? Do you have the correct processes and workflow within your company to complete these new jobs efficiently?
I challenge you to take what you learned here, and implement this new way of thinking into your business. Making higher profits means more opportunities, and puts you in a better position for higher cash flow levels. Remember, growing in revenue is the easy part, what is your profit?