“Measure twice, cut once” (and other business basics that gain efficiency and increase profit)

This article was published in the August/September issue of Digital Image Magazine

The glass ceiling was that level of expectation that I was always striving to achieve. It often felt like an impossible target, sometimes it felt permanently out of arm’s reach. I knew we needed to achieve a certain level of turnover to meet our monthly “open the door” costs. Every business owner should calculate and know the minimum “open the door” cost for their business. Once you’ve identified that monthly operating cost, your turnover obviously must achieve a rate that exceeds that number, to generate your profit.

I know, basic business sense, right? But not always easy to achieve. And if we aren’t achieving it, why not? Again, business basics but fluctuating business cycles, like the months of January and February, generally cause a certain amount of challenge for most businesses that aren’t “contract” reliant. More recently, Covid played a big hand in affecting a business’s ability to meet targets. A significant percentage of staff may be off ill, or some staff leaving due to not being willing to comply with mandates. It doesn’t matter the reason. Businesses always need to face challenges and prepare to deal with and resolve those challenges.

The most obvious way to meet turnover targets is to improve efficiencies. The sign and print industries are notorious for a high amount of re-work. Why so? Because the vast majority of our work is bespoke, one-off designs. Even if you do every store of “Billy Blogs Inc.” around Australia, the vast majority will be of a different size to suit individual stores. Therefore, we need to ensure we meet those criteria.

I always insisted on having working drawings signed off by the client. We all need to do a drawing of the planned work anyway, so why not reduce our risk and get the client to sign their approval? Always have your Lawyer prepare a “get out of jail” clause along the base of the drawing. Something along the lines of “By signing this approval, I give full approval for ABC signs to proceed with manufacture.” I’m not a lawyer, but ASGA has access to one you can seek advice from.

I used to do the same for digital print jobs over two square metres. We would run a proof, and get the client to sign off the print proof as accurate before doing the actual print job. Sound painful? I can assure you it’s far less painful than reprinting the job, then driving to the site and re-installing. We’ve all heard the “measure twice, cut once” analogy, and this is much the same. Basic and good business sense. I can put my hand on my heart and tell you that whenever we had a problem, there was a high chance someone forgot to follow the procedure. That was always a fun conversation to be held afterwards.

Often, we struggle to meet our turnover aspirations. One place to make instant improvements is to look at how you quote and what markup you put on your purchases. If you are charging less than 65% markup on your purchases, then you are going in too low. Yes, if you need to buy $50,000 worth of ACM, you can discount back but for most of your purchases, you will also need to cover off the admin in placing the order, handling, time spent in stock, profit expectations etc.

If you think 65% markup is too high, ask yourself how much you think Bunnings makes on every sale? 65% is a conservative number I’ve used in this article; a bare minimum if you like, it should be higher.

Do you analyse your profit-loss ratio at the completion of every job? If not, why not and how can you measure your business performance if you don’t? It’s like reading a map. If you don’t know the destination, every road will get you there. Knowledge in business is power. You must know how your business is performing. If you lose track of that, then you risk everything you’ve worked for.

If you do everything I’ve outlined already and are still struggling to meet your goals, then you need to either increase turnover or reduce costs.

How do you increase turnover? Look at the percentage of work you win from quoting. The lower that percentage means you are working very hard quoting for a low return on work. The higher the percentage of quotes won, means less time spent estimating and more time manufacturing. Other options to increase turnover are to recruit a salesperson, project manager or estimator. As your business grows, you are going to need help in these arenas. If you are having trouble meeting your quote requests, then you are in a good position. Much easier to not have to worry about finding work rather than where the next job is coming from.

Cutting costs is self-explanatory and not always easy or palatable to do so. Letting staff go can be difficult and counterproductive, especially if they are skilled people. I would suggest looking at your running costs and see if there is something there you can trim or improve. I never let a valued employee go, they are too hard to replace and in the current business climate, I dare say impossible.

If you want an “easy” way to significantly increase your turnover, consider acquisition. It isn’t as silly as it might sound. If your turnover is just chugging along, incorporating another business that may have, say 50% of your current turnover, will give you instant improvement in your bottom line without significantly increasing your running costs. Plus, it’s instant.

Perhaps you have always wanted to do your own steelwork in house but don’t have the equipment of staff. A small sheet metal company might be a good solution as well as giving you the chance to diversify into another field of work you hadn’t previously considered.

If you outsource your installations, consider bringing them in-house and this will increase your bottom line and increase your control over your output of work. My business grew as quickly as it did for one main reason, I didn’t have control of the work I used to outsource. Eventually, it was all brought in-house so I could adjust the workflow more efficiently and meet my own quality expectation, increase profit and improve my ability to meet client demand.

I had many clients for over thirty years and often they would tell me I was the most expensive, but they would never go anywhere else because of the quality we produced, and we always met the time frame.

Bringing all your work in house gives you the ability to increase your profit, expand your skill base and allow yourself to diversify. That is always worth the effort.

Written by Vernon Kingman