How David Increased His Margins

10 January 2018

“I’m the only one in the business who seems to be concerned with increasing our margins,” David complained.

I introduced him to a system that worked for hundreds of other businesses to help simplify the process of managing margins.

Within a few weeks it has begun working for David – see if it will work for you too:

If you would like to hear more about this please feel free to get in touch below.

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You see, by creating a simple breakdown like this, where everything is broken down job-by-job – everything becomes clearer. And it becomes so much easier to have your team look at the numbers as well and immediately see what’s going on.

And as superstar team members, they will naturally start making suggestions on how we can move these numbers upwards – a win-win for everyone!

Prefer to read rather than watch and listen? No problem – here’s everything I said in the video as text:

What I want to talk about today is actually about your focus. And what is it that you’re really measuring in your business.

Now I have this client who came for a session and he was a little concerned about the gross margin that he was making in his business and he was like, “Shweta, I keep telling my team members, my estimators, my project managers, ‘Guys, we are not making good margins, we need to make more margins. You know we’re losing money here, we’re losing money there’. But it seems as if I’m the only one who is concerned about the margins. You know they just, get on with whatever they have to do.” It was really fascinating to hear him because this was not the first time I was hearing this – he was focusing on things which he didn’t want.

So I asked him a simple question. I said, “So, tell me David what exactly are you focused on measuring in your business?” This is a relatively new client. So he said, “I’m measuring my top line, my revenue, my sales and I get my management accounts at the end of the month or at the end of the quarter, depending on when I ask for it.”

So I say, “That’s interesting. So what are you sitting down and looking at with your team in your weekly meetings.” I mean that’s a different conversation altogether when I said weekly meetings but he replied, “Not much. I mean I’ve got an intuitive sense for them because I’ve been in the business for a long time so I obviously tell them what’s happening what’s not happening and I expect them to act on it.”

Now after a couple of sessions sitting down we got an idea of the overall concept. And by the way, this is a very consultable client, really willing, really keen has been in the business for a long time –  a very successful business. But remember that doesn’t mean the fundamentals are being followed. That doesn’t mean that the entire growth has been unlocked or there is sustainability in the business and that’s what you need to think about as I give you an example of this particular client of ours.

So I sat down with David and, look, I totally believe in the simplicity of things because the complex thing is to simplify things. So we sat down and after a little bit of working we came up with this simple sheet, okay. I don’t want you to get lost in the sheet. I have hidden the name of the company for the sake of confidentiality. But basically, every job here is being tracked, as in how was it priced, what was the labour, the material and the total margin that was expected, and then what was the actual costing – that’s it. Simple monitoring simple measuring of job by job. What is the margin? What is the gross profit that we are getting? And also what is the variance, job by job.

As you can imagine now when David sits down with his team members and sitting down with his estimators and project managers and shows them exactly what has happened job by job, he doesn’t have to say much because we can start seeing what’s going on here. Is it how was that project conducted? Is it how the estimation was done? What really happened?

But, you know the interesting about this, is that I asked him after a few weeks of actually implementing this, “So David tell me what is your most important learning for yourself from this activity.” And he said, “Shweta, my learnings are twofold. One is, that whatever I focus on, I get more of. And the second thing is that since the time I’ve started measuring this, it has become so much easier for me to manage my gross margins and profitability of the business”.

So, once again I want to ask you is that what is your top learning from what I’ve shared with you today and what exactly are you focusing on in your meetings, in your business and what are you measuring?

If you would like to discuss any of the points covered here, please feel free to request a free call below.

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If you would like to have an obligation free discussion about selling your business, please email shweta@growthidea.co.uk. You can find more about our investment criterion on https://growthidea.co.uk/private-equity.

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