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Dive And Drive For Growth 2
In this episode, I’m going to talk about diving and driving. It was a big part of our annual meetings in Pennsylvania and just a refresher. It’s not going to do you justice. You need to take the twelve minutes to understand statusing for growth. On the previous episode, I used an example of one of our January goals in which we set a numeric value for the growth of the number of new sites built. Then I also talked about the three critical drivers that have to go into ensuring that. I clearly showed that if these three critical drivers are statused in the old-fashioned Six Sigma way, it’s impossible to not hit the goal. One to three to one to four people can very easily manage three KPIs or three critical driver process. In English, I’m saying that there are very few business goals that you could put in front of me or any qualified business manager. If they understand statusing in Six Sigma and goal setting, if the mind can conceive it and believe it, we can’t achieve with this process. One of the reasons we double in revenue every single year and we have for many years. We’re sixth time now. I just found out Inc. 5000 company with multiple different products that have multiple management teams. It doesn’t matter what we’re moving, we understand the fundamentals of business, goal setting and so forth.
I covered that on episode 390. I do urge you to read that blog of Statusing For Growth. We’re going to presuppose you’ve read that, now what you do once you hit a goal is you stack a couple goals. Lets’ say the January, February, March goal. Our goals are identical in January, February and March because we’re going to launch 300 of these and not 100. We’re looking at April. It’s the beginning of the second quarter. I’ve already preset in our annual meeting what we’re going to do in April, May, and June as a collective body. As a board and as a management team, we’re going to do what’s called dive and drive. I’m going to give everybody the example in the late ‘80s of McDonald’s doing a dive and drive on their numbers to figure out a critical component for same-store growth worldwide.
If the mind can conceive it and believe it, we can achieve it. Click To Tweet
Let’s put our franchise hat on. People buy into a Subway or a McDonald’s and one of the reasons they love to buy a franchise is because they’re handed a working model. They know if they put in their upfront capital, they put on the rate and work behind the counter, as long as there is a decent amount of population in that city and the population is climbing with a big caveat. If you go into a city and the population’s dropping, you might be in trouble. Even McDonald’s once in a while closes some stores. The Law of Franchising says, because McDonald’s corporate does two to four episodes of dive and drive into their datasets every year, they know how to tweak their model, thus they can continually give a new person prospectus that says, “If you give us this much money, we will much ensure you this type of success.”
Let’s talk about diving and driving. If you’ve hit three months in a row of numeric goals, like in our case. We’re going to launch 300 eCommerce platforms and manage them to X dollars per month in net revenue. We’re going to have a tremendous amount of data to look at in April, May, and June. Let’s talk about something much simpler and it’s a Harvard Business Review case study and it goes like this. “McDonald’s wanted to figure out how much of this month’s gross receipts per store should go into next month’s local and national advertising budget.” The way they did it back in the day was the following. If I remember correctly, they began taking February’s gross revenues. They would take 1.6% of gross and put it into next month’s local advertising, local newspaper, local radio, local TV, etc. They would also take 1.6% and send it to corporate and then corporate will put it into a pot and get volume pricing and do national advertising as well. They tried 1.6% and 1.6%. They went about a year and a half and realize, “We’re not getting same-store sales growth.” Over a year and a half to three years, they inched it up to 2.1% and 2.1%. Lo and behold, that following year nearly 100% of stores grew on 2.1% local and 2.1% national campaign.
Let’s say it’s the month of May, in the month of June, the owner of that McDonald’s franchise would find out what the revenue was. If it was a $100,000, they would give $2,100 to their marketing guy and say, “Go spend it right now in the month of June.” They would take $2,100 and wire it to corporate who would put it in a pot. In the next ensuing 30 days, they would spend that cumulative money nationally on ads like the Super Bowl commercial. Here’s what’s amazing. 2.1% achieved same-store sales. They bumped it up to 2.3% and 2.3%. Would you believe that 2.3% and 2.3% did not grow same-store sales, even 1% better than 2.1% and 2.1%? McDonald’s knew they had a eureka moment. They realized what is called a “trailer of marketing dollars.” That means you take the prior month’s gross in some instances you have to use the net. It depends on the market or the industry. Most people use gross. It’s a trailer so then you just slap that into the next month’s budget and it stays consistent.
The cool thing about a trailer and trailing marketing dollars is that as this number grows same-store sales, it also grows the marketing budget alongside it. It’s very important for companies to figure out their marketing trailer dollars. Once you find the number, you can then go into one of my most famously downloaded episode titled Relax in the Numbers. For a business owner and a business manager, without knowing it, most business owner’s goal is to find out the secret formula of marketing and advertising and word of mouth and customer service that ensures month-over-month, year-over-year, same-store sales. Meaning, if you only have one store, you want it to grow all the time and you want it to be on autopilot. Do not let somebody tell you or some book or some podcast or any coach that a business can’t be formulated to become on autopilot. They can. The only thing you have to be careful of is, understanding the law of entropy. It says, “If you put it on cruise control and you step away and go on vacation too long, everything is destined to breakdown.” Entropy is real.
What is the concept of dive and drive for your business? My guesstimate is if you go into this coming Monday and you say to yourself, “We’re having a meeting for an hour.” What three to five critical numbers are currently important to this company? The first number I’m telling you is the aggregated average of gross revenues of each of the last three months. I would start there and then I would do the aggregate average of payroll, including vendors and VA’s and everybody offsite. What you want to extract is, what is the continuing running average of fixed and variable expenses? Of course, if you know some monster onetime expenses that are in your future, you’ve got to put that in there. What you want to do is a very deep dive as microscopically as you can of what exactly went into the top gross line. Do you have commission only on sales reps? You write yourself a note about that. Do you have radio advertising dollars? How much did you spend? There is no way that if you do this dive long enough, you can’t find some numeric correlation to revenue output of gross sales into something. I’ve had so many conversations where people say, “Ken, that is not the case.” In my case, I’m a life coach and all I do is I go to conferences. I bump into people exchange cards, I email them or I jump into Facebook groups at 11:00 at night. I have a day job but I have a business on the side. I just troll Facebook groups and I make friends.
Here’s the bottom line. Everybody has an hourly wage. If you do business on the side, you take what you make in your day job, you divide it into the waking hours of your life. You take the hours in a month, minus eight hours a day for average sleep time. You got sixteen hours a day that you’re awake and you figure out what you’re making in your awake time. Eight hours of that awake time is at your day job, eight hours is not right. Average it all up between sixteen hours. Come up with what do you earn per hour. If you’re trolling Facebook, you’re spending that amount of dollars per hour trolling Facebook. Believe it or not, that’s a real story of what somebody told me. I can prove to you that there’s a cost in that because you could get a second job and do something else. The reality is, what if you just go to conferences? How about the airfare? How about the gas cost to get there? How about the food while you’re there? How about the cost of the conference? How about your business card cost? How about your envelopes, your letterhead, or your website? Everything has a cost that can be amortized and broken down into a monthly expense. If you sat next to me for an hour with your set of books, I can show you what you’re spending to get your gross sales.
Everything has a cost that can be amortized and broken down into a monthly expense. Click To Tweet
What you have to do is be able to list these twenty things that are going into what’s producing your gross sales, and be able to circle the three most impactful things. Maybe it’s conferences. Circle that. It’s a big number. Right now we know that that’s your biggest one, then no-brainer is what if you went to three times more conferences in a given month? There may be a knee-jerk reaction, but we’re brainstorming here. Let’s go back to my new annual meeting in Pennsylvania. We came out with the goal of launching 300 sites, netting $10,000 each per month for our site partners. There is going to be so much data of how much ad spend. There’s going to be roughly a couple million bucks a month in ad spend at the top of that funnel. There’s going to be about $1 million a month aggregated into funnel management. There are all these expenses that go into a labor hour but will unequivocally be trackable via software in production. We will clearly see some funnel managers are producing more than others. We will clearly see some media buyers are buying media for less with better results than some others.
There will be clear delineations to production from a person’s desk to a media platform. If you don’t stop to do the deep dive into the numbers and you think you can continue managing critical drivers and at the same time manage numbers, I’m stating publicly that you’re kidding yourself. You need to hand that off to somebody else and go from there. In 390, you set a goal, you break it into no more than three critical drivers and you set some red lights, yellow lights and green lights. Then you manage all the green lights and away you go. Three months go by, you hit your numbers and now you have some data to dive into and you do like McDonald’s and you keep tweaking. You keep raising the ones that are the most critical. They found that the local advertising combined with national advertising where there are two critical drivers. They would keep ratcheting up the local, ratcheting up to the national. Lo and behold, they hit their sweet spot up into the right with graph and away they went, pressing the gas pedal down and they could relax in the numbers. I hope this helps. Take care.
- Relax in the Numbers – previous episode