OUCH! Where did that come from?!?!
Ups and downs may be fun on a real roller coaster, but when your business is on the revenue roller coaster, you’re dancing with disaster. You may think that making up temporary shortfalls with some credit will solve the problem, but in most cases you’re giving away your profits to the bank.
If you are experiencing this type of white-knuckle ride with all its ups and downs in your revenue flow, there are typically two things going on:
- The number of clients or sales has drastically changed every month.
- And/or the time needed to collect on invoices is more than 30 days.
We had a client that did seasonal work during the summer. They billed nearly 90% of their total revenue for the year in just 2 months … May and June.
Can you imagine the workload spike they experienced just before and during those crazy months? But, just like a drop after the big climb on a roller coaster, the staff also crashed in July mostly exhausted by the ludicrous work load in both ramping up and conducting a marathon blitz each year.
This happened year after year and probably one of the worst examples I’ve seen of the revenue roller-coaster. Since the staff typically collapsed from exhaustion in July, a lot of loose ends started to develop… all resulting from a lot of missing revenue.
The finger pointing would start in the fall when management didn’t see the projected numbers come in. By the time holiday bonuses were to be passed out, the company was struggling just to stay afloat till the next season, no less pay any holiday bonus.
Initially, my company was hired to streamline their ordering process, but while there, I had been watching this roller-coaster happening. I asked for access to their financials to try and help them troubleshoot the problem.
A quick comparison to total revenue versus the projected number from signed contract showed a short-fall of nearly $800,000. For a $4 million company, this number was practically all of their profits.
What was going on? Well, it came down to a few big issues that created a domino effect.
The first was invoicing of their summer work. Imagine the pure chaos the workers and office staff had to experience when everything is slow for most of the year and then go crazy for 2 months. In our analysis, we found that client work that was being done was not being reported to the office properly, and as a result the office never billed some of the completed work each year.
The second is the time it took for the office to get the correct customer information billing purposes. By the time they were ready to invoice the work, it was already 40-60 days past the date the work was completed. And now, add the typical 100 day accounts receivable turnover, and now you find that they have work getting paid for nearly 6 months later.
Now to make matters worse, their clients were operated seasonally as well. So when the invoices arrived at some clients after the Labor Day weekend, they were slow to pay since they too had switched over to a skeleton crew during the off-season. And for some of the bigger accounts, they were not getting paid for over 6-8 months….or basically next year.
The money received in the following year, hid the size of the problem to the untrained eye who lumped the revenue into the annual numbers. Unfortunately, each year they incorrectly assumed they were profitable.
So how did we fix the problem and get them off the roller-coaster?
First, we created a monthly flat-rate, subscription pricing plan that was sold to some of their biggest clients. This got them predictable, monthly cash coming in all year round. That simple change to their revenue model got them the much needed cash during the tightest months.
Second, we built a a system that showed all the work that was projected vs the actual work being done to do a full reconciliation making sure no billable work escaped. Also we built some quick reports so managers could easily pass back what was needed by the office for the billing process.
Next, we systematized their contracts to be able to know thoroughly what work was sold each year and most importantly, the price that it should be invoiced for.
Lastly, we closed the gap by using the contracted work to create a work order system. First by automating the summer work schedules as well as making sure nothing got missed. As work orders were marked completed (tied to the contracts), we were able to automatically generate an invoice for the work within 24-hours of completion.
What were the results?
So you know. . . dominos can also fall in a good direction when you fix core issues like this. The time that we saved the staff on chasing all this work and preparing reports was then used to sell more clients. Not only did we help them recover the missing $800,000 annually in missed billing, there was another $70,000 in traveling expense saved from having the work order system organize the summer work schedule properly. For the first time ever, they actually finished the season 2 weeks early saving on travel, lodging, and labor expenses.
The flat fee pricing system also turned out to be very popular and very profitable. With the added new clients, my client grew by 50%, going from 4 to 6 million annually.
Look, if you are tired of the revenue roller-coaster and you believe we can help, send us a message to book a discovery call.
The best thing about these types of transformations is seeing the peace of mind we bring to the owners, shareholders, AND employees. Not only are profits escaping, but often your key employees are getting worked to death just trying to hold the company together over these ups and downs. Stop the roller-coaster and message me today.