The Strategy Gap – How Do You Get To Where You Want To Be
If you want to grow your business, you need a plan. Before you work on your plan, you need an objective- a specific goal that defines what you want to achieve.
This guide and the tools in it will hep you define your objective and build a road map to getting there.
First let’s consider a very important question- do you actually want to grow your business, and have you considered all that entails?
Anyone who has grown a business will speak of the experience as a journey they’ve been on. It can be challenging, frustrating, exasperating even… but ultimately, if you get it right, highly rewarding. Before you decide the time is right to grow your business, there are some important considerations, questions only you the owner can answer that will determine if this journey is right for you to undertake now, or even if it’s right for you to take at all.
- Are you personally up for the challenge and prepared to make the time commitment necessary?
- Do you have the human resources you need? You are likely to need more people. That could be installers, designers, project managers- or all three. Recruitment can be expensive, time consuming and there is no guarantee of getting the right people. You are also going to be paying salaries before you receive income from orders. Factor in onboarding, training and pipeline development into your forecasts. Review your employment contracts and commission structures- better to make them fit for purpose before you start hiring.
- Are your systems robust? If you are presently just about managing with paper files or a homebrew IT system, will it cope with expansion? You’ll need to think about a CRM system that’s growth resilient.
- Financing. Can you afford this? Detail all your forecast cost increases from the obvious like recruitment fees and salaries to the less obvious like increased insurance premiums, increased mileage allowances, additional software licenses etc. Think about your supplier finance agreements; have you got head room on credit accounts sufficient to manage increased order flows.
- Get your organisational design right before you grow. The way you previously organised your team may not be optimal for your growth journey. Make sure your team is properly configured- are designers going to project manage? Who’s scheduling appliances and work surfaces? Who’s doing aftercare etc. Think about all this in advance, and keep it lean- really lean.
Decision made, clear for take-off.
You’ve reflected carefully on the above and decided you want to push on and develop the business to the next level. Time to set an objective and stress test it. What does this mean? Well before you finalise your growth number you need to assess it against the points above and determine of it is affordable and realistic. A good approach for this is SMART:
- Specific. Define a goal as a quantum. For example, ‘additional £450,000 in revenue, £144k in profit.
- Measurable: Assuming you track monthly order value presently, this should be straightforward.
- Agreeable. Set goals you can get ‘buy in’ from your team on.
- Realistic. Ambition is a great thing, but ambition without realism is just daydreaming.
- Time-bound. Make your objectives clearly defined- a quarter, a half year/ annual etc.
Once you have stress tested a number and settled on it, you now have your objective.
The Strategy Gap.
Let’s say your objective is £2.3m and your present turnover is £1.7m. You’ve a strategy gap of £600,000, £50k per month and with an Average Order Value of £17k ex VAT, you’d need an extra 2.9 sales per month to achieve your objective.
Bridging the Gap
Now you know the gap you must fill in increased orders to achieve your target. The ($64,000 data object from above) question is how you generate the sales and marketing activity to achieve your target.
There are many marketing channels business use to generate sales; from breakfast networking to sponsoring the local cricket club. When trying to devise a strategy to deliver growth you need to examine your existing channels and coldly evaluate their potential to help you achieve your objectives.
For example, if presently you get 3 sales per month from ‘showroom walk-ins’ why would you expect this number to increase? If you think it will be based on general economic trends you are on shaky ground. If you expect it to increase because you are going to spend more money on advertising on local billboards, that’s a fairer assumption if still hard to quantify.
What we haven’t highlighted yet is what your marketing costs are likely to be to support your marketing plan. It’s time to consider three important fundamentals that are all related:
- Attribution
- Marketing Cost Per Acquisition
- Return on Investment
All of these are related, as if you can’t attribute accurately, you can’t compute your MCPA or your ROI. So, let’s start with attribution. In the words of advertising Pioneer John Wanamaker,’ half my advertising budget is wasted- I just don’t know which half’. Of course, what John was referring to was the old problem of attribution. If you have a high street showroom, you put display boards outside houses where you install and you advertise in the local paper- how do you know where your business comes from? The answer unfortunately is you don’t. All you can do is take all your advertising and marketing costs, lump them together, add on 50% of your rent and rates and look treat that as one big lump… with the exception of course of digital. Well executed digital campaigns have attribution at their core, and the calculator that follows shows this.
Your Marketing Cost Per Acquisition is how much it has cost you to make a sale. If your total marketing spend (including half your rent), was £30,000 and you sold 50 kitchens and bathrooms then your MCPA would be £600.
Your ROI (and what we’re interested in here is per sale) is a function of your gross profit per sale and your MPCA. If your Average Order Value (AOV) is £18,000 and your Gross Profit Margin is 32% then your ROI is 9.6% – your £600 in marketing costs delivers £5,760 in gross profit.
Why is this relevant? Well back to our first objective, if we were trying to generate £144,000 in Gross Profit and we knew our ROI was 9.6% – then we know our total marketing budget would need to be an additional £15k to deliver this.