Is your company on track to be as valuable as you want it to be? Is it growing? Is it maximizing profits? If you have difficulty today with your answer, you are not alone.
COVID-19 comes front and center as you ask yourself the ultimate question to achieve change and focus in your business. What drives your economic engine with the greatest and most sustainable impact?
Author Jim Collins states a company can go from “Good to Great” if it determines and understands the intersection of three elements: 1) What it is deeply passionate about, 2) What it can be best at in its industry, and 3) What drives its economic engine. And these three elements are more relevant than ever today.
Your Economic Engine
Your economic engine is measured by one key metric that defines the essence of your business model and is tied to your long-range goal. And that metric is your revenue (or profit or gross margin) per “x”.
Will it change in today’s environment? Yes, most likely. Or will your business model have to shift? These are key questions for your next quarterly leadership meeting. Here is food for thought as you explore your future directions.
Measuring Your Revenue/X
If you could focus on one and only one ratio – revenue per “x” – to systematically increase over time, what “x” factor would have the greatest and most sustainable impact on your economic engine?
Is it revenue/customer, per product line, per project? Which “x” factor, by focusing on it and improving the ratio over time, would provide the highest and most sustainable economic growth?
Here are three examples:
1. Revenue per customer
Focusing on revenue/customer drives increased transactions by each customer or greater spending per transaction. Your decisions are aimed at improving customer loyalty and greater lifetime value.
A classic example is Gillette. They moved from disposable razors to high-tech razors with disposable click-in razor blades. A subtle shift – but with higher technology products, their repeat transactions became far more profitable than the old disposables.
2. Revenue per project
Focusing on revenue/project drives sales activity towards the best-fit projects for your company’s core competencies. The configuration and delivery of these projects is key, regardless of whether a customer buys multiple projects or just one.
An example is an IT company focused on projects that construct and install complex network systems. Decisions determine design and implementation to drive greater revenue.
3. Revenue per product line
Focusing on revenue/product line drives product development and product line expansion for new products to existing customers and existing products to new customers.
An example is a chemical specialty manufacturing company wanting to grow by adding new product lines, and new markets for its existing product lines.
These are examples of key revenue ratios that can be used to drive economic engines.
Do you see how each “x” drives a different set of decisions?
And there’s more.
How about revenue/customer visit? What if you have a multi-location business and you’re looking to expand? Do you measure revenue/store or revenue/region? Southwest Airlines measures revenue/plane. Their brand promise includes lots of flights, which focuses management on the number of planes in the air.
What revenue per “x” will you choose to drive your business decisions?
Go ahead and pick the one with most impact for your company! Then measure it and focus on ways you can increase it over the next 6-18 months. And if you’re not sure which measure to choose, or what its effect might be, contact me today.
All the best
© 2020 David Paul Carter. All rights reserved.
THE ROCKEFELLER HABITS CHECKLIST
What drives companies to success?
This checklist provides the ten most important functions of everyday business that should be on automatic pilot in order for your business to run predictably and consistently. Once in place your executive team is confident that the business can operate without their need to be involved in day-to-day operations.