Two important measurements of the health of your business are the predictability and consistency of your revenue growth rate. If someone were to ask you “What was the growth rate in your profit in each of the last 3 years?”; “What was it last quarter?”; and “What was the growth rate in the comparable quarter last year?”, could you answer those questions quickly and without stumbling? Many business owners are not tracking these crucial statistics, so when they give me their answer and I check the numbers, they are usually far off. When I ask them, “How predictable and consistent is your profit growth rate?”, I hear all kinds of stories as to why there are too many variables. Great companies are able to reliably predict their revenue and are rewarded handsomely when they are ready to sell.
Predictable and Consistent Profits Influence Stakeholders in Different Ways!
Failure to have predictable and consistent profit is a key indicator that means different things to different stakeholders.
• Employees – It causes more job uncertainty, lower trust in leadership, and less feeling of stability. This can lead to higher turnover, less productivity, and lower employee engagement.
• Banking – The less predictable and consistent your profit, the less likely you are to qualify for bank financing, which tends to be one of the cheaper sources of financing. In addition, the more predictable and consistent (assuming good cash flows), the lower your rates will be.
• Shareholders – The more confident shareholders are in their ROI, the more likely they are to keep reinvesting profits back into a business. The lower their confidence, the more likely they are to require dividends.
• Capital Markets – The less predictable and consistent your profit, the fewer your sources of growth capital and the more expensive your cost of capital.
What Does Failure To Predict Profit Indicate?
Failure to have predictable and consistent profits many times indicates that leadership does not have a strong plan to lead, manage, and grow their business. It may mean that you are leading the business with the “Hope and Pray” method, creating a plan on paper but not staying on course, or that your team really does not understand what it is going to take to achieve consistent growth and profit to begin with. You may know what your challenges are, but you have not committed to solving them.
Keys to Achieving Consistent Growth and Profits
Do you wonder what the keys are to achieving and maintaining consistent growth in revenue and profits? Here is a list of steps to take for consideration:
1. You need to have a plan, and you have to work that plan.
2. Your plan must address the key issues that are holding your business back. You have to be brutally honest with yourself.
3. You need the right people, in the right seats, and doing the right things. Your labor efficiency ratio may become the most important ratio in your business as you scale up.
4. Do not just sell products and services. Solve customer problems, needs, and goals.
5. You need to answer the question, “How do I develop a steady flow of customers and minimize my customer acquisition cost?”
6. You must invest every dollar you spend wisely. If your costs are too high, your sustainability will be threatened. If your costs are too low, you may very well struggle to gain momentum and velocity.