After the recent downturn in the economy, companies should take a look at how to gain efficiencies. Especially hard hit were the Oil and Gas companies and the Energy Services Companies who service them.
We have worked with companies that have told us different stories about their operations that make you think about bigger pictures.
For example, one company that we recently met with told us about their rental business. By their admission, they feel that they are probably missing between 3 and 5 days a month of rental revenue on their equipment. So if you look at this the financial impact is between 10% and 16% of monthly revenue is being missed. There is a bigger picture to this, since the costs for the equipment is already included into the monthly amount, this now means that the missed revenue is straight profit for the company.
I don’t know what their profit margins are, but if you assume 10% that would mean that they make $100,000 in profit. By adding $100,000 to $160,000 in additional profit, you have now increased their profit margins to 20% to 26%. This also means that you have increased profit by 100% to 160%. Show me a business that wouldn’t love to double their profit margins.
Another company that we had recent discussions with told us that 5% of their field tickets, what they base their revenue on, go missing every year and that they don’t collect on these tickets. The issue with this is that the company still incurs the costs associated with job, but they don’t receive any revenue for their service.
I will use the same parameters as I did in the first example where profit margins are 10%. If a company can add 5% more revenue without incurring any more costs, then they would increase their profit margins by 50%, 10% + 5% = 15% or 5% on 10% is 50% greater. Once again, who wouldn’t want to increase their profit margins by 50%?
Simple little changes to your company can have a tremendous impact on your organizations overall health. Have you thought about where you might be missing opportunities to gain the efficiencies that will help you grow your company and increase its valuation?
Chris Hamilton
