Today’s podcast features Dino Eliadis who is going to help us understand why focusing on sales isn’t enough. Instead Dino recommends that you focus on operational metrics that show you how efficiently you’re running your business.
In today’s podcast we’ll focus on some of these issues:
- Why sales isn’t the be all and end all of creating a sustainable business.
- How to choose metrics that work in your business.
- Closing metrics for your sales team really count.
- Your probably aren’t charging enough for your products or services.
- How managing your prices could double your profits.
Narrator: Welcome to The Sustainable Business Radio Show podcast where you’ll learn not only how to create a sustainable business but you’ll also learn the secrets of creating extraordinary value within your business and your life. In The Sustainable Business, we focus on what it’s going to take for you to take your successful business and make it economically and personally successful.
Your host, Josh Patrick, is going to help us through finding great thought leaders as well as providing insights he’s learned through his 40 years of owning, running, planning and thinking about what it takes to make a successful business sustainable.
Josh: Hey, how are you today? This is Josh Patrick. You’re at The Sustainable Business.
Today, were going to talk with Dino Eliadis. Dino is from the Tampa, Florida area. He has been around business for a zillion years – not as long as I, I don’t think, but it looks like about half a zillion years anyhow. Today, we’re going to talk about all sorts of things. Dino is a systems guy. And we’re going to talk about how you can make your business sustainable in a simple and systematic way.
So without me wandering on more about this, let’s bring Dino in and let him tell us what he knows.
Hey, Dino. How are you today?
Dino: I’m doing great.
Josh: So, tell me something. Why is it business owners don’t achieve self-sustainability? When you say it’s because they don’t focus on the right objectives, so what might the right objectives be?
Dino: Well, that’s an interesting question, Josh. I think, it tends to be, most people when they think, “Well I’m going to grow a businesses.” The first thing that they think of is sales. So, I need to increase sales. And so, that’s where they focus. But unfortunately, that isn’t necessarily what’s broke in most companies and why they’re not growing. So, just saying focus on sales, eventually you’re going to run into a problem down the road.
Additionally, as I kind of tried to determine the best way to really kind of help small business owners – one day, I was sitting in a seminar and a light bulb kind of came on with the way that they were presenting the material they were presenting. What they were talking about was the way that they grow CEOs from small business owners and grow you into a CEO. And the light bulb that kind of came on was businesses kind of mature and grow. And I studied it when I was getting my MBA — you know, the business growth cycle but nobody was really talking about that, so I began to really do a lot of research and looked for all of the models about business growth and that kind of thing out there and stumbled upon quite a few of them. But one of the things that I really kind of noticed was most of things that people were talking about in these growth cycles weren’t the things that most people were focused on. That is, they weren’t marketing, and sales, and operations, and that kind of stuff. It was things that cut across all of those functions within the company. Actually, we found that, after all of this research, is that there’s two primary areas that really need to be focused on. It’s the leadership within the company or those things that directly tie to the owner and him/herself. And company or management factors which are the things that most people think are within a business that are related to managing a business.
Underneath each of those areas are four were specific things. Primarily, on the management area, it’s financial assets and personnel systems. Systems, in general, across the entire company and business assets were the four factors that actually influenced business growth from a management standpoint. If you look at that, you know, there’s nothing about sales, marketing, operations, administration about any of those factors. But if you do look at those four things and you think about business functions, you get a good idea from that and say, “Well, those things influence all of those functions.” So, if I can improve upon those particular things within the company then I can effectively improve all aspects of the business.
Josh: Let me push back, just a little bit here.
Josh: My question is, and this has been my experience, is that nothing happens in any business until a sale is made. So, if I’m not focusing on sales, how am I going to get the revenue to pay these bills for HR systems, or systems, or business assets, or financial assets?
Dino: That’s a great question and you’re right. I understand that you’ve got to make a sale. But in most cases, you don’t get paid just because you made a sale, right?
Josh: Well, hopefully, you collect some money at some point along the way if you make a sale.
Dino: Well, you hope. But if you don’t deliver on that at the same time – okay? So the cash flow cycle really, within a business, begins with marketing. It moves to sales. Once I’ve sold something, then I have a contract to deliver on something at that particular point in time. And if I don’t deliver on that, it could be a world of hurt, right? So, I still have operationally to deliver on that. And then I’ve got a bill for it. So, that’s really kind of the cash cycle.
The problem is, a lot of times, you have to work that cycle backwards. So, I’ve been in more than a handful of companies or more where I go in and they want more sales but the problem in the business isn’t even sales. They can’t deliver on the sales that they have. It’s an operational issue that they have.
I’ve got a client right now, actually, that’s in that exact situation. Production and sales had been fighting back and forth forever in a day. And the problem is that it has nothing to do with Sales. Sales could sell just fine, if they had something to sell. Unfortunately, it’s a manufacturing company. They can’t put enough out to keep up with sales.
Josh: And so, I have a question for you because the world is built that “we have to pay attention to the top line and it’ll take care of our bottom line” which is not totally true because there’s a big space between those two on the P/L.
Dino: Right. I would agree.
Josh: So how do you get a business owner to stop paying attention to selling and start paying attention to efficiently delivering on the promise?
Dino: We’ve developed a management model that we call Tuning Your Revenue Engine. The concept of Tuning Your Revenue Engine is measuring operational metrics as opposed to financial metrics of the business because the operational metrics are predictive and will allow you to determine what is the right thing? What’s going to happen here so that I can actually influence what’s going to occur on my financials?
Josh: So what would an operational metric be?
Dino: An operational metric would be, for example, “What is your operational capacity?” In other words, how much work can you actually put out based off of the resources that you currently have within your organization?
Josh: What might be a metric that would actually help me measure something that would get more efficient and effective?
Dino: Well, depending on the type of business that you have, say a service business, one of the metrics from an operational standpoint, at least, that would be of importance would be “How long does it actually take for me to deliver one unit of whatever that service is that I actually do?” Does it take an hour? Does it take a half an hour? And what should it take? You know, now I can translate that into dollars in some way, shape or form to determine – “Am I actually charging what I should be charging?” So there’s a lot of different things that kind of spin off of that whole operational metric that I’ve got, in terms of “How long does it take me to deliver one unit of whatever it is that I deliver? What do I sell for value in my company?”
Josh: Okay. So I have a question for you on price elasticity, because you just brought up an interesting thing, “Am I charging the right price?”
Josh: And in a service business, it’s almost universally “no”, at least, in my experience.
Dino: Right, you know, I would agree with that.
Josh: Do you believe most business owners have room for pricing and advancement that they don’t take advantage of?
Dino: Absolutely. I see it almost every time.
Josh: How do you convince your clients that they need to be at least testing higher prices?
Dino: The way that I do that is the critical sales metric that we want to look at for sales is their closing percentage. Most sales professionals will tell you a good close percentage is somewhere between 25% to 40%. So, in other words, of those times that I have an opportunity to write a proposal or give a quote, I’m going to close 25% to 40% of those. Most small business owners, their close percentage is probably 50%, 60%, 70% which means what? They’re leaving money on the table.
Josh: That’s a really good point.
Dino: I understand. Most people think, “Well, if I charge more, I’m going to lose clients.” Well, yeah but you don’t need as many because you’re making more money for each client that you have. So, we’re going to test it. So, raise your price. For the next month, we’re going to test 5% more. I did this with a plumbing client that I had and we increased their price by 5% for three months before we ever saw that close percent start to go down. So, if you think about that, you know—and this guy had been in business for 15 years. So, for 15 years, he was leaving 15% on the table. Multiply that over what he made over that timeframe, that’s a big number.
Josh: So what was his gross sales per year? Just out of curiosity.
Dino: He was probably about a half a million to $650,000 a year on an annual basis.
Josh: And what was his profit on that number?
Dino: 11% to 15%.
Josh: So what you did, when you raised the prices by 15%, you doubled his profit and you didn’t hit any closing ratios. All you did was make three minor tweaks?
Dino: That’s right.
Josh: So, to me, that kind of feels like free money.
Dino: It is and it’s a strategy that most people are hesitant because they’re fearful of what’s going to occur. But I think the other part of that, Josh, is because they don’t understand the cause and effect of their business, because they’re not managing with some kind of a model that gives them that kind of indicators, they don’t know what to measure. Well, if I do this, what’s the effect going to be?
Josh: Can you explain what do you mean by cause and effect?
Dino: Cause and effect is – If I change something within my business, how’s that going to affect all the other aspects of my business? So, obviously, with the example that we’ve just been discussing, I increase my price that had different effects on my business. Yes, it increased my bottom line but what else did it do within my business?
Most business owners don’t understand that. It probably made my close percentage go down, which means I don’t have as much work, which is fine because what that actually did was, that gave me more operational capacity, because I don’t have to do as many jobs with the same amount of resources to make the same amount of revenue that I did before. The problem though is most small business owners don’t understand.
That’s why I developed the Revenue Engine model the way that I did, was just exactly for that. People don’t understand, when I change this, something else is going to happen in my business but what’s it going to be? And if I don’t have a way of being able to measure that in some way, shape or form what’s going to happen is the next fire is going to start burn in my business.
I’m sure you’ve heard it all the time, right?: Small business owner is a firefighter. You know, I’m putting this fire out as soon as I put that fire out. And another one springs up somewhere else. And when I talk about cause and effect, that’s what I’m talking about.
So the intent of that revenue engine model was that we built it so that you understand where’s the choke point within your revenue cycle? When I fix that one, what’s going to break next? So, where’s the next choke point going to come as soon as I open up this other one?
And actually, in growing a business, you need to understand that because as you grow the business, that changes, right over time. That’s why I said, a lot of times, people don’t understand. Even though they want to start growing their business, they naturally think, “Well, I’ve got to increase sales.” Well, if you don’t have an operation that can handle more work, then you’re going to create a bigger problem for yourself.
Josh: I have a term I use for that, it’s that – I think that most businesses, if they’re well run, play whack ‘em all.
Dino: Yes. That’s a good picture to paint, I think, with that.
Josh: Well, you just explained. You said, “Look, here’s a problem we’re going to solve. And when we solve this problem, there’ll be another mole that pops up—
Dino: It’s going to pop up some place else, right.
Josh: That you need to whack.
Josh: And if you’re trying to figure out what the next mole that’s popping up or what hole it’s coming out of, you’re likely to be wrong.
Dino: Actually, that’s a good transition to some extent here, Josh, too because the reason that most business owners never can get business to that passive ownership or what I call self-sustainability is because they don’t understand or they don’t have a good mechanism to help them to measure what’s going on in the business, in a way, that they feel comfortable to be able to step away and turn that over and just say, “Look, these are the metrics, follow these metrics in this particular manner and this is what will come out the other side of that.” So, a lot of what it is that we help businesses do with the system that we’ve built is exactly that, teach them how to put those things in place, to be able to predictively manage their business so that they have a level of comfort that they can turn that over to somebody and hire a general manager that can easily manage and turn that crank for them.
Josh: There’s two things to keep people, in my experience, from truly delegating and especially a smaller business – lack of trust in their people and a non-tolerance for other people making mistakes.
Dino: Yeah. I would definitely agree with those.
And what we found is typically the reason that they have that is they’ve had some bad experience in some way, shape or form. It’s either been with an employee internally or they tried to outsource something and it turned into a nightmare.
The system, if you will, that we’ve created to fix that is there’s two pieces – I think, any time you delegate work. And the first one is, you know, a scope of work. In terms of a job that you may create within a company, it’s probably the position description. You know, you’re responsible to do or accomplish this.
The second piece is the piece that’s missing most of the time and that’s a quality standard. So how are you going to evaluate whether someone gave you what the expectation was of that scope of work or not. And most small business owners fail to give that performance standard. And as a result, they get burned. It doesn’t allow for accountability to be created within the business at the same time as well.
Josh: So, it sounds like, what you’re saying is, most smaller private business owners don’t set clear expectations so they can expect to make sure those expectations are being met?
Dino: Exactly. That’s exactly correct.
Josh: So what can somebody do to learn how to do this? Because it’s skills, it’s not something that you’re born with. You learn it some point along your life.
Dino: Right. I would agree with that. And it’s just becoming a disciple of business, you know? I mean, understanding that you don’t know everything and go on out there and learning what it is that you need to learn.
Josh: So, if I was going to learn that one piece, how to set expectations clearly, how would I do it?
Dino: Basically, what the model is set up to do is to measure operationally what is the capacity of your operation and what are those key indicators from an operation standpoint that we need to measure so that we know whether we’re on track or we’re off track. And there’s three or four calculations that we help people to figure out what those things are.
Now, once I understand that and I understand what capacity is, then I can say, “Well, am I using all of my capacity or not?” And in most cases, they’re not using all of their capacity. Okay, well, if I’m not using all of my capacity and I need to move back one step in the process that means I need sales to fill that additional capacity that I still have at this particular point so I’m going to build a sales plan of some sort in order to do that.
But again, if I don’t know what those metrics and sales really are and the metrics and sales are things like “How many transactions have I created in a certain period of time? What’s that average per transaction that I’m actually charging? And what’s the close percentage? So that I really understand the dynamic of how much do I need to put through sales in order to hit that number that I need to hit within sales?
Well, it’s all fine and dandy but if the problem isn’t in sales because it may be – well, I don’t have enough leads to actually sell. So now, I’ve got to move back into the marketing function within the business and say, “What am I doing from a marketing standpoint that’s generating those leads that I’m closing in sales? And what’s my efficiency and effectiveness within those marketing?” And so, we’ve got some simple calculations that you can do there to get a better idea of what it is that’s going through. Now that I understand what I should be measuring and those metrics that I need to be looking at from marketing, sales and an operation standpoint, it becomes much easier for me to say, “Where do I need to focus my attention based off of what’s going on?”
Josh: So, it sounds like, what you’re talking about is, in the LEAN world, we call root cause analysis?
Dino: Yeah. Definitely, it would be.
Josh: And you’re essentially peeling the onion by asking lost of questions to get to the root cause?
Josh: So, Dino, I am really sorry but we are out of time.
Dino: No problem.
Josh: We could go on for a lot longer but—
Dino: I’m sure.
Josh: I’m trying to keep things around 20 minutes.
And I’m going to bet that some people listening today might want to contact you, so if they did, how would they go about doing that?
Dino: Well, you can contact us at dinoeliadis.com.
Josh: And how do you spell it?
Dino: Or they can find information on our blog which is yoursmallbusinessgrowth.com.
Josh: Okay, great.
Hey, Dino, thanks so much for your time today. It’s been a pleasure speaking with you.
Dino: Thank you for having me, Josh.
Josh: Lots of good stuff for us to think about here. And if you happen to own a business, lots of good stuff for you to think about.
This is Josh Patrick and you’re at The Sustainable Business and I hope you want to create one fur yourself. Thanks so much for listening today.
Narrator: You’ve been listening to The Sustainable Business podcast where we ask the question, “What would it take for your business to still be around 100 years from now?” If you like what you’ve heard and want more information, please contact Josh Patrick at 802‑846‑1264 ext 2, or visit us on our website at www.askjoshpatrick.com, or you can send Josh an e-mail at firstname.lastname@example.org.
Thanks for listening. We hope to see you at The Sustainable Business in the near future.