Growth Archives | Board Associates

Productivity: Uncovering Hidden Opportunities for Growth

April 30, 2024/in Advisory Board, Financial, Growth/by Matthew Dunstan

In today’s dynamic economic environment, business owners constantly seek ways to enhance efficiency and drive growth. One of the most effective approaches to achieving these goals is through the strategic use of performance metrics. Among these, ‘Revenue Per Hour Paid’ is a potent tool. Originally from the realm of professional services, this simple yet profound metric reveals hidden productivity insights that are applicable across various industries. This blog explores how implementing this key metric can improve business productivity, providing owners with actionable insights into optimising their operations.

“What gets measured gets managed.” Peter Drucker

The Metric: Revenue Per Hour Paid

‘Revenue Per Hour Paid’ calculates the revenue generated per paid working hour, offering a clear view of how effectively a company utilises its human resources in relation to its revenue generation. It’s a straightforward calculation: divide top-line revenue by the total hours paid to employees. This approach highlights the direct relationship between workforce efficiency and revenue output.

Broadening the Metric’s Horizons: A Recent Case Study

The metric ‘Revenue Per Hour Paid’ is highly adaptable across various industries and provides crucial insights into operational efficiency. One Advisory Board client experienced financial discrepancies where there was an increase in top-line revenue but a declining cash bank balance. Initially, this was attributed to the need for increased working capital to fund growth. However, further analysis of ‘Revenue Per Hour Paid’ revealed that there were deeper issues at play. The metric showed a significant drop in revenue per hour, from $350 to $270 over time, indicating that rising revenues were masking a decline in productivity. This insight was instrumental in addressing the inefficiencies that were inflating operational costs and depleting cash reserves. It highlighted the metric’s value beyond traditional productivity assessment.

How to Calculate Productivity

Consider “ConstructCo,” a hypothetical company, which reported an annual revenue of $27,600,000. The company employs 50 workers, each working 40 hours a week.

Calculate Total Hours Worked Annually:
- Total hours worked annually = 50 employees x 40 hours/week x 52 weeks = 104,000 hours
Calculate Revenue Per Hour Paid:
- Revenue per hour paid = $27,600,000 / 104,000 hours = approximately $265.38 per hour

This calculation shows that for every hour worked at ConstructCo, the company earns about $265.38, providing a clear measure of workforce productivity.

Expanding the Calculation to Capital Investments:

For industries reliant on heavy machinery or plant equipment, the same formula can be applied to assess the productivity of these investments. For example, if ConstructCo also wants to measure the productivity of a specific piece of machinery:

Calculate Total Operating Hours for the Machinery:
- Total operating hours annually = 30 hours/week x 52 weeks = 1,560 hours
Attribute Revenue to this Machinery:
- Revenue per operating hour = $5,500,000 / 1,560 hours = approximately $3,525.64 per hour

This helps ConstructCo determine how effectively their capital investments are contributing to the company’s revenue.

Conclusion

The ‘Revenue Per Hour Paid’ metric extends beyond traditional financial metrics by offering a clear, actionable indicator of how effectively revenue is being earned. It provides businesses not only with a method to measure success accurately but also drives them towards it more effectively. By integrating this metric into their strategic review, companies can diagnose the underlying issues, steering towards more sustainable profitability and operational efficiency.

A Business Plan Isn’t About the Document

June 21, 2015/in Growth, Leadership, News/by Matthew Dunstan

Most organisations I’ve worked in and worked with, begrudge business planning. Not because they don’t know how, but because it didn’t add a lot of value last time they did it.

But why doesn’t it add value? The problem lies in the lack of direction it contains and how it’s used once it’s created.

“The value of a map comes from the direction you take from it

— Matthew Dunstan

Instead of a document, we need a roadmap. Something that guides the evolution of the business, gives us concrete milestones and acts as a filter for every day decisions and actions.

TO CROSS AN OCEAN, YOU NEED WAYPOINTS

When we crossed the Atlantic, we didn’t just point the boat east and start sailing. We planned a route with a number of major waypoints along the way. Even when circumstances would force us off course, the overall plan still held true. Our goal was clear. Our route, chosen for all the right reasons, was still valid. Our waypoints still gave us a short term focus, helping us break the endeavour down into manageable pieces.

THE BEST BUSINESS PLAN IS ONE YOU CAN DRAW

I believe business plans need this same approach. A destination, a broad plan describing how you’re going to get there and a series of waypoints to guide you day to day. You can document this in a number of ways, but my favourite is to show it in a Gantt chart or flow chart format. It allows you to capture the direction, strategy and sequence on a single page that is easy to communicate and review.

[we’re running a Business Planning Masterclass in July to help leaders and entrepreneurs craft better business plans]

BEST USE OF A BUSINESS PLAN

Of course crafting the plan is just the start. Nothing happens without execution and this is the second challenge for business plans and those responsible for them.

Instead of regarding it as a job done, the business plan should drive the agenda of your management meetings. To illustrate, here’s a sample of a standing management meeting agenda I use with clients. We start every management meeting with these 3 items:

Touch base with the overall plan
- Where we’re headed & why we care (vision, mission, goals)
- Our plan to get there (strategy, roadmap, & immediate milestones)
Progress against the immediate milestone
- Report on action items from each stakeholder
New opportunities or threats to the business.
- Validate against the plan

THE SHINY-BALL FILTER

Starting the meeting ‘with the end in mind’ (Covey), is a great way to keep everyone on the same page and most importantly, align the actions and initiatives of the team to your plan for the business. It helps keep the focus at a strategic level and acts as a useful filter against which you can review actions, ideas and opportunities:

If they contribute to or accelerate the plan, they’re in.
If they relate to a milestone further down the track, they’re parked.
If they’re not aligned to the plan, they’re out.

[Further reading: Entrepreneur’s Shiny Ball Syndrome]

With a clear direction and roadmap a business plan can act as a valuable tool guiding the day to day operations of the business. So dust it off, reduce it to a flow chart and get it onto the management meeting agenda.

Strategic oversight and consistent implementation will focus your resources and drive your business faster than anything else.

[Rising Tide Ventures will be holding a series of Business Planning Masterclasses during July. You can find out more or register here]

Why Your Marketing Doesn’t Work

June 6, 2015/in Growth, News/by Matthew Dunstan

If marketing has been around since the 1960’s, why is it still so hard to get it right?

For decades a lot of very smart people have been trying to work out how to market a business. And yet despite all that work, we’re still no clearer. Our efforts are no more effective. Results and return on investment are still out of reach for the majority of business owners.

“Half the money I spend on advertising is wasted; the trouble is I don’t know which half.

— John Wanamaker

IS YOUR MARKETING MORE LIKE INTERNET DATING?

In my experience the problem lies in the fact that we think of marketing like speed dating – we try something, it doesn’t work. We try something else – that doesn’t work either…and so on.

Like speed dating, you might stumble across someone interesting (but if you do, it will be by accident). Like speed dating, it might lead somewhere…but probably won’t!

Instead of trying to find a partner through a series of one night stands, we need to plan a courtship and to do that, we need to think broader than the stand alone marketing activities that most businesses engage in.

MOST MARKETING DOESN’T WORK (BY ITSELF)

We all have our favourite marketing tactics and that’s ok. For some it’s events, for others it’s adwords. Networking and social media are other popular tactics at the moment.

The common mistake however, is that these tactics stand alone like an island at sea. There’s no bridge to, or from them. And this is the problem with most marketing plans. It’s not that the tactics are bad – it’s just that they lack something upstream to feed them and something downstream to follow them. In most marketing plans this doesn’t exist.

A MARKETING WATERFALL APPROACH

The opportunity is to design a marketing pipeline that sits above your sales pipeline. One that engages your target market and takes them on a journey before you start a sales conversation.

It might sound harder or less direct than a calendar of stand-alone marketing tactics but there are a number of advantages to doing it this way:

Clarity: In defining your marketing waterfall, you’re defining the demand generation model for your business. Once you know what it is, you know how to grow the business.
Efficiency: Now that you’re not switching from one tactic to another, you can focus your budget and efforts for best effect. Your marketing becomes a streamlined set of connected activities rather than a children’s lucky dip.
A healthier pipeline. By focusing your efforts in the right places and at the right times, the results start to flow in a more consistent manner. Done well, you end up with a pipeline of prospects who are prequalified and presold.
Return on Investment: With a designed marketing waterfall in place, you’re now able to track the key metrics of acquisition and conversion at each stage. This allows you to make informed decisions about which tactics are working, which need to be rethought and a measure of your marketing ROI.

ONE SIZE FITS ALL

One of the great things I love about this approach is that it can be right sized to all businesses. I used this model at Microsoft when I ran a team of marketing managers, but I’ve also implemented it for sole-operators. It works at a scale of one, but the sophistication can grow with the resources available in the organisation.

(Marketing Waterfall design is a core component of our “Strategies for Growth” Workshops – a popular series we run for leadership teams, entrepreneurs and marketing managers – you can read more about them here).

So take a fresh look at your marketing efforts. Are you courting your prospects or are you trying to sleep with them on the first date? Is your marketing producing results or like most, are you randomly engaging the market and hoping that if you make enough noise it will pay off?

For most, there’s a great opportunity to design a better growth strategy. One which is easier to implement, is a better experience for your prospects and which has a more positive and direct impact on your bottom line.