Pretend for a moment you are the proud owner of a coffee company. The lifeblood of most organizations today, your selling productivity and joy one pound at a time.
Your company sells bags of coffee for $10.
It costs you $9.00 to produce, leaving $1.00 in profit.
To summarize, that’s $1 of profit for every bag you sell. If you wanted to make $2, sell two bags. For $3, three bags. Obvious, right?
Simple Answers vs Simple Solutions
For most managers and business owners, the answer feels simple. To increase cash flow, increase sales. To generate more money, sell more of a product or service. This is a widely accepted practice and it can work.
Imagine however, you took a different approach. Instead of seeing sales as the first step to growth, what if you opted for efficiency. Increase the value of the revenue you already have. Rather of trying to sell twice as much, what would happen if you simply got 10% better?
A 11% improvement on $9.00 in expenses would result in 99 cents increase in profit per bag.
Increase efficiency by 11% or increase sales by 100%, the result is the same.
Continuing the exercise, imagine start selling your product to a local grocery store chain. Then, you sign a deal with a series of farmers markets. Now, you’re selling 10,000 bags per month. You’re business has annual sales of over one million dollars. Impressive.
As you look to the future, you’re faced with a gripping reality: Unless something changes, increasing available cash flow means continuing to apply more effort. Selling more coffee means more inventory on hand, more staff, more warehouse space, more customers, and more distribution channels.
Better Before Bigger
Before trying to get bigger, what if you focused the same effort on getting better. Better before bigger. Without doubling sales, you focus attention on streamlining efficiency, cutting costs, and delivering the same product with less effort. Increasing value while decreasing costs. It doesn’t have to be massive effort with systemic change, but incremental improvements.
For this coffee business, setting your team’s attention on just 1% improvement each month would yield double the profit in just 8 months. Within less than a year, you would experience increase cashflow and increased capacity without any additional revenue.
What’s right for you
Every business is different. There are those who sell products, others sell services, and others still who sell software. The numbers may be different but the correlation between sales and efficiency remains the same. You can always push to get bigger, or you can start with getting better.
If you commit to the process, the latter often yields greater results with much less effort.