The number you really need to know to drive business performance
Phil shares insight into the mathematics of strategic resourcing and gives case study examples of CEOs who, through awareness of this key number, have boosted business performance
5 minute read
Here’s a short blog about optimising business performance through strategic resourcing, touching on a common error that we make when trying to scale a business. Specifically, this is about understanding - really understanding - how many people you need on your team to realise your vision. So let’s look briefly at mathematics; reflect on which numbers business managers typically do and don’t tune into, and challenge a very typical assumption as to how we look at headcount.
In essence, this is about acknowledging there are mathematical formulas in your business, which conceptually is how very few CEOs approach things. Very few CEOs actually are mathematicians. As a result, this topic can often seem a bit odd - counter to how most of us learn to run a business - and, frankly, can sound theoretical, academic, and not grounded in day-to-day reality. So let me try to persuade you that this is a very real topic indeed, and one which is absolutely going to dictate whether you achieve your ambitions or not.
Here's the fact of the matter, when I ask CEOs if they know what their revenue is, they always do know that number; when I ask about their profitability, they almost always know those numbers. When I ask how many people they have working for them, somewhat fewer know that precise number but are at least usually pretty close to it. But when I ask what revenue COULD your business generate with your current team, compared to what they are currently generating, if everything was running perfectly, I am usually met with a blank stare. And when I push harder and say ‘come on, what if every performer was as effective as your top performers - what if every sales person was as good as your top salesperson (and why do we seem to accept that there’ll always be a leader board with a range of performance by the way?) - what if everything ran as well as it possibly could, without hiring any more resources, what do you think you could really turn over then?’ The response I pretty much always I get is that everyone is working flat out, and that, frankly, there's not an awful lot more that could be achieved. And if there is, then it's probably in the 15 to 20% range.
Well, hard experience tells us that those kind of guesstimates are invariably wrong. And, I mean, wildly wrong. For over a decade now we have regularly been calculating these numbers and seen many a jaw hit the table when the actual number materialises. At its most extreme, I worked with a business some years ago which was turning over just over £15 million with their current headcount and who, when we calculated what they could be generating if everything was going seamlessly, it turned out that they could be turning over as much as £105 million.
Much more recently, I have been working with a business currently turning over £3 million, looking to get to £8 million as quickly as possible, and, which was running an assumption that to do that they would need around 80 people - as currently they have around 30 people generating 3 million. And this is an extremely common belief - that a business will generate £100,000 per FTE (a statistic which I believe applies to around 70% of businesses). However, on really diving into the maths in these numbers, we have now calculated that in order to generate their £8 million of turnover, they could actually do it with 43 members of staff, even factoring in that there is no such thing as everything always running perfectly.
Another recent example - a business who is already much more aggressive in terms of revenue per FTE, and who were rightly proud of currently generating £200,000+ per FTE, meaning that, in their view to get to their £20 million revenue vision, they were going to need 100 people. Again, when we actually dived into the numbers and calculated what excellent could look like, we saw that they could achieve their £20 million with just 58 members of staff. I leave you to figure out what that means in terms of the relative profitability of those numbers.
I do implore you to avoid what I encountered when I took over a business in North America - where on one particular product, there was a fairly bold $1 million annual revenue target, and, whenever it looked like sales were off target, they would add sales resource to get there. And get there they did - but only by piling up the resource to achieve it. Meaning the top line target was hit but zero - zero! - profit was generated. Some might call that busy fool syndrome. And whilst that may sound somewhat insane when you look at it in the cold light of day, and an exception to how most businesses should run, the sad fact of the matter is that I have observed an equivalent scenario in countless businesses over the years.
So, in summary, get to know your numbers - your REAL numbers - when it comes to resourcing. The late Edward de Bono wrote about the difference between believed facts and checked facts. Which ones are you using to run your business? And how do you get to know how to calculate your real numbers? Give us a call…