Growth can be a dangerous thing if it is not understood, managed or sustainable. The investment that a business needs to make to ensure growth happens can be catastrophic if the following year it disappears. In this month's blog I am going to give you my opinions on how to effectively manage growth, how to plan for it and most importantly how to ensure it is sustainable and profitable.
All medium sized business owners have already had a taste of success and what good earnings feel like. What's dangerous at this point is that you don't get carried away by concentrating on growth in the wrong areas and you stay commercial. The golden advice that I want every business owner to remember from reading this blog is that real growth is not increasing staff numbers or turnover it's about increasing conversions and profit.
Rule one - Understand where you are
Growth is not a guessing game so the first step is to understand how the business is currently performing. I have years of experience in creating sustainable growth and I always begin by mapping out the key pulse points. I can effectively manage a business from £1 - £17m with one sheet of paper as long as it holds the key information on a monthly basis.
Understanding your numbers makes you more confident and educated as a decision maker when creating growth. I would recommend you sit down and map out the following sales management information for the last 3 years:
Unit sales per month
Turnover per month
Gross profit per month
Once you have done this, map out the following financial information:
Cost base per quarter (this includes staff)
Net profit per quarter
Managing your current sales performance against the set budget (which includes the growth targets) will ensure you are being proactive and address any underperformance ensuring growth occurs. The financial tracking needs to be done quarterly to ensure any spending is in line with the budget and is not spiralling out of control.
Rule two - Plan, cost and understand how
I keep everything simple and set a plan each year which both my team and I have had input into and understood.
Most businesses plan for growth on a set percentage scale such as 5% or 10% and always base growth on turnover, I don't. You are not reaching your full potential if each year you only grow by the percentage you have for the last 3 years. If you increase your headcount your bottom line should show this. I look for each member of sales staff to contribute to my net profit otherwise what is the point of having them? If my sales team increase so should my take home.
As I would have tracked my historical performance I can easily calculate the actual growth that has been achieved per year, I then plan for a percentage of growth in addition to this. If your figures have decreased then your first plan should be to get back to where you were last year or the year before.
I have detailed below a quick guide to setting a growth plan:
Understand the area you want growth and plan based on gross profit.
Work out what amount of growth you want and keep this realistic as its demotivating if your team do not achieve it.
Meet on a quarterly basis with your staff so they can help plan and buy into your goal.
Work out your averages per deal and then calculate this back into the number of increased sales required.
Set clear sales targets and work out a plan with your sales people of how the additional sales will be achieved.
Check your affordability of the increased marketing or staff costs.
Work out staff productivity levels to understand if you need to recruit.
Set a clear time line for the additional growth, sales activity and revenue generation to be complete (financial year).
Rule three - Make more out of what you have
I am the queen of conversion. I love walking into a business and generating growth without them spending any money on increasing staff or lead volumes.
Conversion to me is the absolute key to growth because if you do not manage it effectively you will never be as profitable as you could. To truly understand your conversions you have to understand the sales process in your business. I have mapped out a very simple sales structure below:
Lead - Appointment
Appointment - Quote
Quote - Order
Order - Invoice
Invoice - Revenue Received
Understanding your conversions helps you understand where you are losing money. If you plan for growth and invest in your marketing to generate more leads but your sales staff can't convert you have wasted time and money.
If your business could benefit from conversion advice, feel free to contact me directly.
Rule four - keep it real and your feet on the ground
The point at which a small business grows to a medium sized one is not as risky as the point in which a medium business grows larger and I know this from my own personal experience. A medium business outgrows the business premises, I.T infrastructure, staffing structure and most often the management structure. All of this results in an increased cost base and unsettled staff.
60% of all the consultancy work I do is helping medium sized businesses develop and cope with growth. Developing a management team from the small/medium business mentality to manage a larger business is hard so getting everyone's buy in is very important.
My advice is, think everything through and do things for the right reasons. Keeping your feet on the ground as the money is rolling in is hard. More money means more disposable income, more decision makers to spend the money and ultimately a change in the position and expectation of the business. Swanky offices and increased spending are only really necessary if they have a direct impact on the bottom line.
Rule five - report and reflect
Acknowledgement of growth is an important aspect to managing it. You need to set up regular, accurate reporting that measures the current business and staffs performance. I always measure against two indicators:
Actual performance year to date against current budget
Actual performance year to date, against the previous years
I could write for pages on how to effectively create and manage growth but I hope this short blog gives you an insight to how achievable it is.