By now, it’s occurred to you that the holidays are not coming back, it isn’t getting warmer any time soon and you’d better get at it. It’s about this time every year that businesses really get serious about attracting and winning new customers.
What happens next is as predictable as the gyms being packed in January. Businesses put together these elaborate, grandiose plans that come with Gantt charts, calendars, and color-coding.
But even with all that planning, two key questions are rarely asked or answered.
How much do we need? And of course the follow-up question should be: and how much could we even handle?
Most business development plans fail because first we get all excited about them but we behave as if we’re trying to create the Mona Lisa and second because we have no idea how much is enough. The truth is most businesses create plans that, if they actually executed on them consistently, would bring too much opportunity their way. They bite off more than they could possibly chew and then they choke on it.
Why are the gyms empty again by February? Two reasons. First – the New Year’s newbies tried to tackle too much and couldn’t sustain it. Second – they didn’t have realistic goals. If they did, they would have been able to scale back their plan to better bring them what they actually needed.
That’s true of the business development patterns of most organizations. We try to do too much because we don’t know the answer to the “how much” questions.
To get to those answers, you need to make some decisions and gather some data. It’s not difficult but it will take a little bit of time and requires us to do some simple math. But if you hang in there with me, I promise it will be worth the effort.
Gather up the following facts from your 2017 financial data.
- Total gross billings (Everything you billed/charged your customers)
- Cost of goods (All the hard costs you incurred on behalf of your clients. This does not include any costs related to your employees or your overhead. COGS are hard costs like raw materials, what you paid a wholesaler for what you sell retail or if you act as an agent for your clients – buying printing or some other service on their behalf and then charging them for it.)
- Your net profit (What’s left over after you pay out all your expenses, including your staff and overhead.)
When you subtract your COGS from your gross billings, you get your net income or adjusted gross income. That’s the number we’re going to focus on. You’ll want to know what percentage of your gross billings turns into net income. Let’s say you bill $1 million dollars and $500,000 is COGS. That means your net income is 50%.
Now, figure out how many FTEs (full-time equivalents) you have on staff. Divide your net income by the number of FTEs you have. That tells you how much net income you earn per employee.
If you’re happy with your net profit number, then your employees are producing approximately as much net income per person as you need them to. If you’re not profitable or the profit number is too low, then you need to increase that per person average by helping your people be more efficient or by re-thinking your pricing model (or one of a million other things).
Next week, I’ll show you what to do with these numbers (I figure you need the week to gather them up) and what decisions you need as you define just how much business development you should be doing.
Gather the facts and next week we’ll use them to get realistic. I think you’ll be both relieved and surprised.