I deal with smart business owners every day. They know their business well and by nature know the ebbs and flows of their business operations. I’m surprised by how little many of them know their critical numbers: average revenue per client, number of employees per client, or costs of materials, labor, etc.
A good friend of mine, Rick Berry, is the founder of Demandforce and sold his business to Intuit in 2012. I have been fortunate to be a recipient of much of his coaching and he has always said, “if you can’t measure it, you can’t manage it.” In every business, there are lots of things to measure, however, there are probably only 3 or 4 that, when measured, would have a meaningful impact on your business. Let’s face it, as business owners, many of us spend 80% of our time on the 20% of “stuff” that does not even move the needle.
THE $1 BILLION QUESTION
Figuring out what to measure isn’t easy.
In the early 1990s, the McDonald’s Corporation set a goal to grow its revenue by $1 billion annually. Now, when you’re serving “millions and millions” already, how is this accomplished? Your market share is most likely saturated and you can only raise prices so much if you want to stay competitive.
To start, McDonald’s started measuring their average revenue per customer visit. The typical revenue model for each restaurant is simply the number of customers multiplied by average ticket sale. Now, knowing this, after measuring it, a restaurant can increase revenue by either getting more customers (unlikely in a saturated market) or generating more revenue per ticket…perhaps by raising prices (which would make them uncompetitive).
Once they had this data, McDonald’s decided on a course of action. To increase the average size of each ticket, McDonald’s began asking its customers one question near the completion of their order. Do you know what that question was?
You may have guessed that the question McDonald’s began asking was, “do you want fries with that,” but that was their revenue generating question of the 1970s. In the 1990s most McDonald’s customers were already purchasing combo meals (sandwich, fries, drink). What McDonald’s did was ask their customers, “do you want to super-size that?” In the moment, the customer has a choice and they decide if the price of their meal goes up, not McDonald’s. So, McDonald’s increased their average revenue per customer visit and when you’re already serving millions, a brand new billion dollars arrives.
This all came about by measuring, then subsequently managing, certain metrics within their business.
What questions might you start asking your customers or your employees to drive revenue or decrease expenses when you start measuring the right numbers in your business?
Give us a call at 610.246.6750 or drop us a line at email@example.com and we can explore these questions together.
myofficeops provides back office administrative services to small and medium sized businesses including accounting, payroll, human resources, and technology. Bringing years of experience as CFO to the table, Steve Rickel, CEO and founder, sits down with each new client to discuss their financial goals and comes up with a plan on what to measure and how to measure it. Once those numbers are in you’ll get a plan on how to make those numbers work for you. There’s no downside to investing a small amount of time to determine what makes your business tick, so give Steve a call at 610-455-4259 for a free assessment of your business.