Renewing business plans
Posted on | May 12, 2010 | No Comments
Whatever the size of your business, you have a finite capacity which is determined by the resources you have. There will be a limiting factor to how effectively that resource can be used. A manufacturer may be limited by machine capacity, a retailer by shelf space and a services company by human resource – by its people. In my case, my limiting factor, as a one person operation providing writing services, is my time.
One of the aims of an effectively run business is to maximise the use and profitability of the resources at its disposal, hence the need to review and revise plans from time to time and to make sure that usage really is effective.
In his book First Things First, Steven Covey uses an example of a glass jar which is ‘filled’ first with rocks, then smaller stones are added followed by gravel. At this point, the jar is full, or so it seems until water is added. His point, that what seemed full still had spare capacity, is a metaphor that I am using to renew my business plan and I and thought that I’d share my thinking so far. I’d be interested in your feedback.
I’m using four types of work to tie in with Covey’s rocks, stones, gravel and water. You may have more (or less) in your business.
The first step is to make sure you’ve created time and space for your rocks. Rocks represent regular work that is contracted or on retainer. This class of work must be profitable but may not be premium priced. Long term work of this nature needs less sales effort and so the costs, mostly of customer and account management, will be lower. Review your pricing from time to time to ensure that you haven’t slipped into making a loss.
The stones will be significant work items – in my case major articles or white papers – but for non contracted clients with whom you may have an existing relationship and for whom you have probably worked before. Here, you can consider a premium pricing option as it will allow you to show a benefit if they become contracted and thus allow you to upsell them to a contract basis.
Gravel is jobbing work for one off clients. The amount of this that you can take on will be determined by the space available once the rocks and stones are in place. Whilst pricing should be to clear a profit, in this case it can be marginal and pricing can be discounted if it will occupy a resource which otherwise would be quiet and cost money whilst idle.
I am defining water as internal work, such as maintenance or creating marketing materials, which generates no direct income. By fitting this type of work in the gaps between client work, you reduce the opportunity cost of doing it. Such work is no less important to the business but is generally not urgent and, if planned correctly, can be done in quiet time.
This exercise, once done, will allow you to calculate your additional work needs. It can also be used to assess the need for increasing (or reducing) your capacity. Knowing your capacity – and how much of it is available at any time – will ensure that you don’t overload by taking attractive one-off work for which you have insufficient capacity or turn down work that would benefit your business and represent pure profit.
Andy Coote is a professional writer and co-author of A Friend in Every City (2006), a book about Social Networking and Business. As a commentator on leadership and networking, Andy provides content strategy, writing support and services for a number of Business Leaders. You can reach him at andy [at] bizwords [dot] co [dot] uk or view his website at www.bizwords.co.uk.
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