How do I track progress? And how will I know if I'm even on target? What do I do if I find myself missing the mark and is there a way to even accelerate our progress toward our goal?
Most entrepreneurs don't have a clear and compelling roadmap for the future. Welcome to Forecast On Purpose, where we talk about how to define your purpose, build a growth plan and track progress along the way to make sure you stay on target.
The result is clarity, confidence, and peace of mind that you are on the right track. My name is Ben Cooper and I'm the founder of Amplify. We help entrepreneurs better understand how today's decisions either positively or negatively affect your future. In each episode, we'll hear a short story of an entrepreneur facing an important growth decision,
a, business concept that applies to that situation and a key question or action step for you to take to your business and apply and look at your situation through a new lens. In the future, it may even be possible that we could be talking about your business and your challenges here on this podcast.
Today, we're going to be talking about tracking progress along the way. Let's get started.
John and his brother started a carpet cleaning business about six years ago and have grown it just primarily through word of mouth. They've got a lot of customers, family, friends, folks in their neighborhoods who hire them and have them come and clean their houses. Now they're in a position where they're wanting to potentially expand, but what it's going to require is a $50,000 investment to buy a new van that has, you know, new equipment in it and the capability of serving, not just a single location, but multiple locations. They can split up and divide and conquer of sorts and maybe even go beyond just one more vehicle, but even start thinking about, well, what would it look like to have 2, 3, 4 vehicles with our names on the side
advertising our service and the ability to continue to serve a larger and larger audience? Well, they may be able to just go get approved for a loan from the bank to finance the purchase of some of these vehicles, but what's also important is knowing how this additional capacity and this additional investment is going to fit into the overall plan. So we have a baseline extrapolation forecast that we put together that
is all those historical financial relationships and current margins, all those things that flow into the future and allow us to see what the next 12 months might look like. Now what's important is that we begin to layer on a new decision, like investing in a new vehicle and we want to map out, not just the outgoing dollars, but recognize also that this could be a new revenue source where our capacity is going up
and we're able to increase the number of customers that we're able to serve. And we could stop there and look at, okay, well, yes, we can justify it. We can, we can invest in this or we might need to wait four or five months to be able to afford and move forward with this decision.
And we also want to examine the things that are available to us within the business, within the financials that allow us to potentially accelerate our ability. So it's not just let's track our progress along the way and make sure that we're, generating a certain amount of operating profit each month and we can justify a new expense,
but what we also want to do is intentionally examine the actual inner workings of the business. And we're going to dive into four different levers that may help us not have to wait four to five months to invest in growing John and his brother's carpet cleaning business. So we're going to look at in the free guide that you can find at forecastonpurpose.com.
We're going to look at the progress section. And what you'll find is a table where there are four key levers that can help us increase our gross margin and increase our profitability to help us find new available dollars that we're able to channel toward you know, kind of rally the troops and say,
let's generate as much financial resources possible to accelerate our plan and to just move forward with the thing that we know deep down will help us move the business toward our overall purpose. So the four different levers, you'll see that it's a two by two grid and we have two categories: product and service.
And then we have the system, meaning the business system kind of overhead operating expense, all those things. Those are the columns and then the rows are the directions that we want to move. We want to maybe move higher or we want to move lower. And if you're looking at this, this will probably make more sense than if you're just listening. But,
our goal is to move four different components of the business in four specific directions. And so let's start top left. The product and service that we want to increase and move higher is the price per unit that we're able to sell. Now we'll get into more detail on pricing in a future episode, but what's important to know right now is that one of the fastest ways that you can increase profitability in your business is by finding that customers are gladly willing to spend an even higher amount than you have been charging
for the same service. And it's not to take advantage of your customers at all; it's to just make sure that you are providing, you know, the same quality service, but if they're willing to pay $10 more per carpet cleaning it's really important for you to know that because that $10 flows right through and becomes available for a decision like investing in a new vehicle.
Within product and service, a thing that we want to make lower and reduce would be our variable expenses. And so an example for John and his brother would be, Hey, you know, there is a a type of soap that we can use that is, if we buy in bulk, It costs a dollar less per cleaning. And so there are some opportunities like that, that you might find that,
you know, again, not sacrificing quality necessarily, but there's a way to increase price and lower cost of goods, lower those burial expenses that are incurred every time you provide the service. Then that combination immediately is going to increase the gross margin in two ways. It's just expanding upward and it's expanding downward.
The third, when we move into the right column, which is the system, if we look at the business as a whole, then what we want to increase and make higher is throughput. We want to increase the number of service calls that we're able to make within a 30 day period. Every month there are expenses that hit like clockwork and,
you know, if we're able to fit in 10% more jobs in a given month, then the gross margin dollars that are created from those jobs aren't as quickly being absorbed by rent or salaries, just the general cost of running the business. And then the fourth thing we want to look at is reducing and lowering the fixed period costs.
So our internet provider. There's a new company in town and we're able to save $75 a month by switching to this other service provider. And that's one of those moves that just creates, again,
new dollars that are available to be put toward other goals. So we want to be able to track progress and understand how our decisions are layering on top of the path that we have in front of us, but really what we also want to be able to look at and, and analyze here is what opportunities do we have in front of us to not just say, okay, that path, the trajectory that we mapped out as an initial baseline plan, that's destiny. That's
bound to happen and let's just go on the journey. Really, what we have here are a few controls that allow us to say, you know, what we think that we can increase our price and importantly, and there's some great tools that are available for building out forecasts and different scenarios,
one of them being Fathom that's my favorite tool of choice is a tool that allows us to build up a plan on top of the baseline. And we say, Okay. Here's the scenario where John and his brother increased price and then they reduce some of the variable costs. They cut down some overhead
and they push some new sales through the system every month. So they make all four moves, and what we're able to to see is by adjusting some of these assumptions about price per service appointment and the cost of providing that. What we're able to see is that
their revenue and profitability and cash position, all positively move in the direction that pretty quickly allows us to say, you know what, we don't have to wait four or five months to invest in growth. We can actually two months from now, it looks like we're going to be able to. So when we talk about connecting today's decisions to the bigger picture,
this is a great example where what we are looking to do is find the opportunities and each business is different. Each business is unique. But find the opportunities within these general categories where we can make improvements and in doing so then we can actually see that it accelerates or if we make, if we move things in the wrong direction, for instance, if we
cut our revenue per service appointment and cost of goods goes up. Our overhead goes up, we enter a slow point in the season and throughput goes down, what we're, what we will also see is a deceleration of our ability to move toward those important goals. So we might see, if things go in the wrong direction, and this is where we talk about tracking progress, if we see a more monitoring, almost like a doctor looking at,
chart or in the hospital. I remember when we had babies born, there are these monitors that you're able to look at and see all these graphs. And there are a lot of numbers, and it provides a picture for the doctor of how are things going?
You know, what's happening? And in a similar way, we can look at our business and we can look at different metrics and see, okay, how healthy is the business? And where are things moving in a direction we like, and where are they moving in a direction we don't like? And the ability to catch it early and be able to identify where things are not moving in the direction you want
sooner rather than later, allows us to get things back on track. It also allows us to know that even if things aren't going exactly how we want, we can find some of those upper and lower boundaries of, well, we obviously don't want to become less profitable as a business, but we are able to see that even if the cost of soap
doubles for instance, you know, we are actually still in a position where we can invest in the truck. Maybe not four to five months from now, but six to seven months, it looks like we could still afford to do so. And that creates again, some peace of mind in anybody who's trying to steer a business in a direction and it removes some of the guesswork because alternatively.
You can find yourself in a position where you say, well, the banker's willing to loan me the money to not just buy one truck, but six trucks. We can get a whole fleet. And the problem with that is just because you can doesn't mean you should. It's one of my favorite sayings in life: just because you can doesn't mean you should. And so what
this process allows us to do and, and drilling into these four different levers that it doesn't just leave us with hopes and you know, dreams that we just say, well, let's cross our fingers and hope for the best here. It's more let's put this into a plan layered on top, and let's see what we can do to accelerate this picture.
If you or someone you know is an entrepreneur and you'd like some help planning for the future, don't hesitate to reach out. Go to forecastonpurpose.com to learn more, and remember: you are not alone and you don't have to just keep blindly guessing about the future. Keep fighting the good fight and forecast on purpose.