Blocks of Profit

 

Let's face it, we're all in the service business.  Why do we have to "face it"?  Because it's tough to run a service business.  No matter how you look at it, clients buy our expertise in blocks of time and so we are always constrained by the number of hours in a day. No matter how good our services, we need to remember to run ourselves and our companies like businesses that offer products and talk in terms of "gross margins" to make the money we deserve.  I always advise (well, I advise only those who ask), to work on increasing their top line - gross income - rather than focusing on the expenses, but I get resistance.  I think I get that resistance because expenses are more tangible.  Growing the top line or gross income is somewhat more vague.  And if I start to talk about measuring or growing Gross Margin, things get a little cloudier for service providers like us.

 

So let's see if we can agree on the concept of Gross Margin for services rendered.  To do so, let's use this definition - Revenues LESS Cost of Goods Sold, which is common for product businesses.  In a product company labor cost is included, but it's not the biggest cost.  Now let's look at a service business.  This time salaries, commissions, travel and entertainment are going to be the biggest costs.  Hard or fixed costs will probably be in the 10%-15% range.  And not to get too detailed here, we need to remember what we're looking for, is your or your company's Gross Profit Margin.

 

Gross Margin/Total Sales Revenue = X%

 

Simply stated the higher the percentage, the more the company retains on each dollar of gross income.   And some studies show we should be shooting for a 40%-50% gross profit margin.  It's clear the math shows the value of maximizing our time!  And since all of us essentially have the same amount of time and are willing to spend more or less of it in pursuit of our financial objectives, it's clear to see why we have to squeeze more "production" out of the time we are willing to spend working so we can grow our top line gross.  Our product is time.  We have to think of our time as a product.  A well designed, efficient product.  One that works really well and is a pleasure to use.   It might help to think of some the technical gadgets we use and compare their engineering to our "engineered time" blocks.

 

Just like our electronics get smaller and more portable, our blocks of product (time) have to work more efficiently.  We have to work on our "time block's" engineering and packaging at a pace that keeps it competitive in the market. Our "package of time" is our service.  To make it a viable product on the shelf, we need to recognize and embrace the positive side of change and maximize our time and resources through the implementation of technology, streamlining our processes through things like workflow automation, learn and practice time management, employ business operation metrics, and keep up with electronic communication products and trends.  Hey, no one said it would be easy.  But I'll bet you find it rewarding.

 

I heard the other day that in a broad sense the young entering the workforce have a bit of a problem.  They don't like the idea of "serving".  Having grown up in a completely self-service environment they are so used to bad or no service they see "service" and think "sub-servant".  I hope they get with good companies that teach them about the high gross margins achievable in the service industry obtained by those who understand how to make the best use of their time.  I hope we all remember that being "of service" is truly the best business to be in.  Both for the obtainable profits and the freedom it offers.   So measure your profit margin often and see if it helps you deliver a better product!

 

Come join our discussion on our blog, or I welcome your feedback through email.