As top line revenue grows, there is a need to add capacity to keep up with the demand. That capacity can come in various ways. It could mean adding additional shifts to existing equipment, adding new or different equipment, or becoming more productive with the people and equipment already in place.
These decisions are obviously based on the mix of the work and client expectations. As you grow, it is also important to monitor your productivity trends. Is the business getting more efficient or bloated? While the top line revenue increases, are the returns matching expectations? Finally, based on the investments in people, equipment, and technology, evaluate whether the business is playing to its fullest potential.
I recently wrote about the value of KPIs and taking action on what you see in your dashboard. Taking the conversation a bit further, I believe it’s important to look at trends over a period. Particularly as companies have invested in new technology, workflows, and automation, how are those expenditures affecting the financial performance of the business?
As an example, let’s look at a company that in the last two years has had top line revenue growth by over 50%. They are very focused on the type of work that they do, and it has paid off by attracting like-type customers. As we examine key metrics from a recent two-year period, here’s what we find out. Total employee count has grown by over 30%, and total payroll as a percentage of value added has decreased by 4%. However, sales per factory employee have decreased by 11% and value added per factory employee has decreased by 21%.
The work is getting out on time, and the profitability of the business is up by 50%, so do these other metrics really matter? The question asked is are the results in line with their investments and the overall opportunities available to the business. Not to be greedy, but another way to say it is that they are doing well, but could they be doing better, playing to their potential?
Only you can determine the metrics and trends that matter for your business. Decisions and investments are made for all different reasons. In the end, did they meet your expectations, even if they may not look great on a line graph.
Work with your team to create meaningful KPIs, trends, and action plans that are meaningful and relevant for your business. If you have any comments or thoughts as to how you’ve approached these issues, please send me a note, or include them below.
Mike Philie can help validate what’s working and what may need to change in your business. Changing the trajectory of a business is difficult to do while simultaneously operating the core competencies. Mike provides strategy and insight to owners and CEOs in the Graphic Communications Industry by providing direct and realistic advice, not being afraid to voice the unpopular opinion and helping leaders navigate change through a common sense and practical approach. Learn more at www.philiegroup.com, LinkedIn or email at firstname.lastname@example.org.
Originally publisher in Printing Impressions.