Understanding your Business Levers
Contents
Growing your visitor attraction
Understanding your Business Levers
It is vital you know how your business model works. Identifying trends and ratios over historic period will give you an insight into your business levers – i.e. what is important and what needs to be the focus for improvement.
Revenue Streams
Understand EVERY line of your revenue, and what it costs to produce this income is key to understanding and shaping your business goals.
Questions to ask:
- Where is my income coming from?
For each revenue stream:
- What is my cost of sale for this – e.g. Food/Beverage/Merchandise/Staffing costs?
- And extrapolate Operating and Net PROFIT per £1 net revenue achieved.
- What proportion of the total income is each revenue stream?
- What drives this revenue?
- Is this seasonal or does the income vary from month to month?
- What is my Short/Medium and Long Term Goal for this revenue stream?
- Does this Revenue Stream fit with my Business Strategy/Mission/Vision/Goals and Values?
These questions will prompt many more, but is important to set out your goals and your holistic business strategy prior to making any changes.
For instance – Does this Revenue Stream fit with my Business Strategy/Mission/Vision/Goals and Values?
- If it does, how much profit does it contribute & how much time should concentrate on it?
- If it does not, then:
- what is the future and what am I going to do about it?
- Can I afford to lose this immediately/short term/ longer term?
- What is it going to be replaced by?
Costs
Understanding every line of your costs is vital to understanding the commercial reality of your business, and to ensure that the business remains sustainable and grows in the short, medium and long term. Understanding the trends and the KPI ratios to Revenue and profit will determine the best strategy for the planning.
In an attraction business, the most likely largest costs are as follows:
- Rent
- Payroll
- Utilities
Clearly, rent and utilities will (on the whole) be fixed, and will have been negotiated with terms which may be difficult to change.
Payroll
Most attraction and Experience businesses will already have done the exercise to ensure staffing levels are optimised, however this process should be undertaken at the beginning of every quarter of operation, with the forecast planning of the revenue streams taken into consideration. It is no good to plan to staff for a £100k week when realistically you are targeting an income of £80k generated from your marketing activity.
Clearly, your Human Resource is you most important asset – they are the people that deliver your revenue after all. You must look at Costs from a holistic level, and ensure that any changes you wish to make are well planned and communicated, and above all – fit with your values and mission and vision for your business
Questions to ask when looking at staffing levels:
- What are my fixed costs on payroll? (These will tend to be Full Time Salaried).
- What is my productivity % for my fixed cost employees – i.e. what income do they generate?
- What are my variable costs on payroll (These will tend to be your Part Time employees)
- What is the productivity % for my part time employees – i.e. what income do they generate?
- Is my Operating model efficient?
- How do I plan my resourcing?
- Are my opening times correct? Have I built in seasonality to my annual/Monthly/Weekly/Daily plan?
Other costs
Be forensic with your understanding of cost lines. Asking ‘Why have I spent this?’ every time you see an invoice, and clear management and control of who can authorise spending in your business is the key to cash control.
Pitfalls:
- Petty Cash – remove as much possibility for spending through this as possible – it is the sign of a poorly managed and planned spending process.
- Budget for each Week/Month and Day as well as annually – and ensure that spending and authority levels are in place across the entirety of your business. Make people accountable for their own departmental spending and Follow up and Manage according to their own personal objectives/accountabilities.
- Avoid standing orders/Direct Debits where possible, but if they are a necessity, ensure you are fully in control and they are budgeted for.
Some Examples of Cost Dangers:
- Photocopying costs – Do you rent your printer/copier and pay per copy?
Having a printer which defaults to colour copy, and a business which allows all staff to print out in colour without any form of process could be costing you a fortune. 10p per colour copy vs <2p for black and white. Over the course of a year, one business saved £34k by ensuring that the settings defaulted to black and white. - Water coolers – do you really NEED all of these?
- Lockers – rental vs purchase?
- Bin collections – rental per bin – are you using all of these each week?
Profit/Contribution
Turnover is vanity/profit is sanity
If you have been through your financial KPIs and you understand the relationship of your Revenue and your profit – Gross Profit, Operating Profit and Net Profit, then you are connected to the pulse of your business.
Understanding each and every lever which ‘flows down’ to the profit line is the key to making informed decisions as you plan Short, medium and Long term strategy for your business.
Benchmarking your performance against other operators and other like business will assist you in benchmarking your business and ensuring you are operating effectively and efficiently.