After some recent comments from a customer, I was reminded about a TV documentary on the Taxi Drivers in London during the boom of the 1980′s.
For many working within the ‘Square Mile’ around all the booming city firms, business was good. In fact so good that at certain times in the month they could go home after working only two or three hours, because of the level of fares, and tips. They claimed an increased quality of life, and more time with the family.
Now this all sounds very good for them and you think they are on to a good thing, until you hear how one driver worded his sift. He had set a daily target of what he needed to take in order to produce a good life for him and his family. I am sure that you will have a good idea of what your business needs in order to be successful. However, the flaw I saw in his ‘business plan’ was that he stopped work for the day when he achieved his target.
Why do I find this a bad tactic? – Lets try some fictitious figures.
Assume that the daily target is £500 in fares. I have no idea how accurate such a figure is for now or then, but it will do as a guide.
- In a busy day the taxi driver reaches target in three hours and goes home.
- In a reasonable day the taxi driver reaches target in seven hours.
- In a quiet day he reaches £400 at the end of eight hours work.
Now my argument is not about the actual daily target, but looking at the takings against the effort.
- On the busy day he achieved £166 / hour
- On the reasonable day he achieved £71 / hour
- On a quiet day he achieved £50 / hour
Looking at this I would reverse the logic, by saying the he should work longer hours during the busy times and go home on the quiet days. Although this is then contrary to the daily target, you still need a daily target, in order to calculate the hourly rates.
So, you now probably want to know how you should apply this to your business. Well this is all about profit for your effort. Even if you charge a fixed hourly rate, you are only making profits when you are doing work for which there is a charge being made.
Look less at the time you spend on an action and more on the profit per hour of the task. This way you will become more discerning about which activities you prioritise. I warn you that you are in for some shocks. You may well find the some regular activities are far less profitable, even though they provide a ‘regular income’.
This type of analysis is also good for focusing your mind onto taking many ‘similar’ jobs, where the effort for one can be duplicated into many, with each still paying the ‘standard rate.’ We have spent over a year in re-defining the applications that we provide to our customers. This has meant the ‘unbundling’ of all the services, and then looking for the similarities in order to create standard ‘bricks.’ We have then used those bricks to re-build the services for new and existing customers.
We often refer to this is our own sales system as re-designing for scalabilty. The scaliabilty of a bussiness process in the abilty for it to deal with increasing numbers, without the need to increase the finite resources, such as staff. If I have to have to demonstrate to each customer how our new product works, then I am limited by the amount of time I can give to demonstrating to customers. If I could record a video and send that on a DVD to all new customers, I am now limited by the production of DVD’s. And if I make that video available online, I now have scalabilty equal to my hosting provider being able to cope with the number of downloads. So, I have achieved the closest possible to infinite scalabilty.
I will return to scalabilty again, but the message here is ‘watch you profit per hour’