Allow yourself time to gain the knowledge you will need to use reports to achieve whatever your purposes may be ~Dale S. Richards
Taking control of your own business – what’s it worth to you? Allow yourself some time to learn.
A little fun with learning optimization
Concrete Truck Monitoring System
I have used this example in a number of settings – but it gets the message across. Consider that everyone has a GPS system today, but 15 years ago, GPS did not exist for the common applications. For the example application, we will learn from today, it was for a concrete company. Tell me what a concrete truck driver does after the load in delivered?
- First and foremost, the truck needs to be washed out or it will be twice as heavy in a years time.
- After the truck is washed what happens next? Typically the driver would go to the coffee shop for a break.
A locator device costs $6,000 per truck but it could track trucks and result in one more load per day delivered. So if you owned a company with 100 trucks, how much would it take to outfit all of the trucks? ($600.000)
Most concrete companies did not have $600,000 cash to purchase the locator device. The company in this example was selling about $20,000 per month or $240,000 per year.
I was able to help the company devise a Break-Even Calculator so the owner could determine the ROI and Break-Even for the project. A local bank came on board to provide financing.
The business owner would supply the revenue from an eight-yard load, the cost of the load, the cost of labor, and the number of trucks in the fleet. How long do you think the average project Break-Even was for the project? (Between 25 and 90 days!)
In the normal capital budget process, a project with a Break-Even less than two years is considered for the budget. In my example, there was such a short break-even, that almost all customers wanted the locator device.
With the calculator and bank association, the company improved sales tremendously. In two years, the company sold for $20 million!
80/20 Customer Gold!
What is the Pareto Principle?
The 80/20 Rule. This rule was developed back in the 1880s by an Italian/French man and it applies today. What are some examples of the 80/20 principle?
80% of your revenue comes from 20% of your customers
80% of your revenue comes from 20% of your product line
80% of your output comes from 20% of your employees
80% of your problems come from 20% of your customers
80% of your employee problems come from 20% of the employees
How can you use the 80/20 principle to PROACTIVELY increase your revenue by 10% – 200%?
First, you must find out who the top 20% of the customers are. Take your customer sales data for the last two or three years and download this data to a spreadsheet. Once it is downloaded sort from highest revenue to lowest. (You should also look at the customer by margin.) Add a column for cumulative percent on the side of the revenue sort. Sum each row until you reach 80% of the total revenue. Now you know the top customers.
Once the top 20% or “80/20 Customer Gold Program”TM customers are determined then a methodical program can be designed to build relationships with key people within the organization. What people’s titles would you want to build a relationship with? Chief Executive Officers (CXOs), purchasing agent, accounts payable, project director, sales department, etc. Now strategically have a corresponding department person in your company build a relationship with them. How do you find out what these people like or enjoy? Meet or talk with them to get to know them better. This process will build a proactive vs. reactive customer relationship.
The benefits of this “80/20 Customer Gold Program”TM are significant
Jay loved Dale Richards’ Presentation skills and optimization methods, including coaching skills, 80/20 Customer Gold, and systemization. Jay Bernath, Atlanta, Georgia and the Vistage Members learned key business concepts from Dale Richards’ presentation on Business Valuation Principles – How to Increase Your Business Value, Financially, Operational and Strategically. learn.
ABOUT DALE S. RICHARDS:
Preview Dales presentations: Watch Dale In Action Dale S. Richards specializes in management, marketing, operation optimization & business valuation consulting and is a 25+ year turnaround expert. He has implemented success concepts into results in 150+ companies. Dale is a Certified Valuation Analyst (CVA) with NACVA, a Vistage International CEO-Board Chair in Utah and a World and Vistage International Speaker. Visit www.successbiznow.com to learn more about Dale and business valuation services.