By the Numbers: Why Metrics, Math & Profits Rule in Business

Feb 22 2012

By the Numbers: Why Metrics, Math & Profits Rule in Business

Running my PR firm has taught me a lot about the importance of efficiency, process and profitability. I also have good counsel (that I pay for) and thought I’d share what the past 17 years of ownership has taught me. Coupled with this is the fact that I’m being asked to speak more often on the subject of integrating social media with traditional marketing campaigns and how companies can track and measure their efforts. In my own business, I know that is important as investing in social takes time and people.

Last night, I had the opportunity to speak the Memphis chapter of FEI (Financial Executives International), an audience of mostly CPAs, CFOs and finance executives from a variety of industries. With an audience like that, ROI (Return on Investment) is surely a large part of that discussion. But I also caution people that ROI can also stand for “Risk of Ignorance,” meaning that you have to at least get familiar with social and listen to what people are saying as a minimal investment. So, as technology (mobile) and social continue to expand, how do we track what matters and how do we plan our strategies for the future? Use numbers as your guide regardless of what your business is:

  • The average formula for productive team members selling a service such as ours is three times what you pay them: In service firms, you must evaluate team members by not only what they produce (bill) but also what they collect (cash in the bank). Average CPA firm managers and young lawyers are required by most firms to bill and collect 2,200 hours annually.
  • Profitability and revenue are two different things: Just because you have higher revenue doesn’t mean you have high profit margins. Look at the margins of your business and see where you can cut low profit services and more importantly, add higher value that clients will pay more for. Crisis PR would be an example of higher value for our firm.
  • Hire a good banker and CPA and listen to them: It’s the best money you will spend, as they should be looking for ways to improve your efficiency rates and cut costs.
  • Never be afraid to make staff changes when the numbers tell the story: Too often business owners can put off needed changes because it’s easier and, hey, we’re busy trying to keep everything going. Productive team members are the ones who go the extra mile, understand the profit margins and want your company to grow and win. Change is painful but the math will help ensure that the best staffing decisions are made.
  • On the point above: Share the formulas and strategy with your team: At Howell, we have a strong team of what I believe are long-term producers. We work as a team, we take up slack for each other when needed, and we all want the best possible outcomes for our clients. In doing this, we probably leave money on the table and are reviewing ways to increase fees for higher valued services. Our team also now understands this math. We review periodically what the production looks like and how each team member can be more productive. How can your team know what the expectations are if you don’t communicate them? As an owner and mentor, it’s my job to lead my team to actualize productivity.
  • Invest in the technology that helps your team compete and excel: We’ve increased our technology budget but decreased our reliance on paper, printing, etc. We’ve bought iPhones, iPads, Apple computers and new compatible printers. We ditched the witch BizHub we were leasing—what a rip off! We use our iPhones remotely to post client news and monitor the social sites as well as talk to clients and to each other.
  • Purchase vs. lease and rent back opportunity: Instead of leasing space, I bought a commercial office unit in the S. Main area of Downtown Memphis three years ago. Although smaller than my bigger offices out east, we are more efficient and I’m paying myself back over the long haul. I was able to cut my monthly spend by 50% and I’ll have an asset on the books when it’s paid off. My banker has also advised paying twice the principal due to increase payoff schedule.
  • Constantly evaluate best practices in client service: What Twitter has done for me is provide introductions to my peers in other markets who gladly share success stories. I’m always benchmarking what we’re doing against my peers. Social media for provided “continuing education” on steroids.
  • Be sure to charge enough for your services and the value that you bring: At Howell, we don’t do time sheets. With one exception (art and photography) we have managed to stay away from that tedious (hideous is a better word) process. I think my distaste for doing this stems from my work with law and accounting firms. I believe it cheapens the result for the client and ultimately encourages people to take more time (bill more time) to get work done, which can breed inefficiency. However, if you aren’t tracking time, you can quickly reduce your realization rate, which negatively impacts your bottom line. This is where our CPA helps us review what we charge against the average time spent. I have a confession: I hope we never have to do time sheets.
  • Finally, review financials and do annual budgeting: Set goals, plan accordingly, create budgets and stick to them.

 

Math works. As my great banker, Dana Burkett (Commercial Bank & Trust) says, “Profit is king and revenue is ego.”  Words to bank on. Thanks for reading this and stay profitable!