I believe it was Guy Kawasaki who quoted, ‘sales fixes everything’. If only that was true. I’ve had to assist numerous businesses over the last 15 years where the owners had a sales or volume growth focus, at the expense of efficiency and profit. They didn’t consider and manage all the important levers. A volume first mentality is a good way of growing your business into a low margin, low profitability, tight cash-flow, low value organisation. And believe me, that business type is no fun.
Instead of ‘sales fixes everything’, a better quote is ‘gross profit and efficiency fixes everything’. A gross profit and efficiency mentality will force you to focus on implementing growth and efficiency strategies that will drive a profitable, sustainable, enjoyable and valuable business. There are always many things you can do to improve the performance of a business but often it is just tinkering. Instead, have a daily focus on the ‘big rocks’, the growth and efficiency strategies that will catapult profitability. The key levers to pull are:
Growth
- Increase volume (google ‘Ansoff Matrix’)
- Increase price (if you can differentiate effectively then get your price up)
- Improve the quality of everything (again a significant differentiator)
- Improve employee capability and productivity (recruit and retain the best people, and dump the duds quickly)
Efficiency
- Decrease direct labour as a percentage of revenue (think the 7 wastes)
- Decrease materials and freight as a percentage of revenue (think the 7 wastes)
- Decrease overheads as a percentage of revenue (but don’t strangle growth. You normally can’t save yourself into the fortune)
- Decrease the average inventory holding (without strangling volume growth)
- Decrease the debtor collection period (chase them, it’s your money)
- Decrease net assets as a percentage of sales (don’t buy fancy gear because it looks good. Ensure your asset purchases will enable growth or decrease direct and fixed expenses)
Each of these 10 key levers need to be pulled at the right time and the right amount to maximise business performance and profitability. Sales definitely does not fix everything.
