Our client approached us and confided they were struggling in their business. The numbers weren’t pretty. $1.3 million turnover and a $70K loss. The client felt demoralised. They’d worked hard and were going backwards.
Dean sat down with the client. He looked at the work they were doing. And he quickly figured out the problem.
There was an element of their work that was low dollar revenue, high labour intensity. It involved being on call for a client. On call is not bad – except that it was subject to standard rates set by the client.
One of the on call episodes occurred on a public holiday. They travelled an hour to the job site, spent an hour and a half on site doing what they had to do, then returned to base – all for the grand sum of $50.
Whilst this was a few years ago – $50 was still a fairly lousy return for the service they provided back then.
Dean worked with the client to determine what they should be earning for that job. As you can imagine, it was significantly more than $50.
The client had two options:
- Increase the price.
- Offload the client.
Our client baulked at both options.
It would be difficult to justify a price increase, particularly as they’d already signed up to it in the first place. And, there was no compelling reason to argue that costs had increased substantially.
Offloading the client was seen as a potential loss of face. How could the business get out of the existing deal? Would they be subject to penalties if they terminated the arrangement? What would they do with the staff they had and the equipment they’d purchased?
After a number of sleepless nights, the path of Option 2 was chosen. The phone call was made and, surprisingly to our clients, extracting themselves from the arrangement was not that difficult. Their client was amenable to the change.
Fast forward 12 months. Revenue was down $300K to $1 million. Profit came in at $50K.
Hang on! Did you say a $300K drop in turnover lead to a company that was losing $70K pa turning around to making $50K pa?
Yes! And how it was done was by sitting down with the client and analysing what elements of their business worked for them. And what didn’t.
That $300K of revenue was actually costing the business $420K to generate. By taking that profit sucking revenue stream out of the business, the business was reinvented in less than 12 months.
Cashflow improved. Stress levels dropped. The value of the business increased. And the owners of the business could start to think about the next opportunity that was worth pursuing in their business.
Sometimes maximising profit is achieved not necessarily by growing revenue.
CASE STUDY 2: TRANSITIONS
