The Power of 7 Levers…Twice
Introduction
Perhaps you have been told the oft repeated mantra: “work on your business, not in it”. The saying is tricky wisdom because it sounds wise but is not actually all that helpful. It doesn’t tell you how. For business owners struggling to get outside the day to day, they are aware they need to be working on their business. They also know drowning in it doesn’t feel good. They just don’t know how. They don’t know what the team needs delegated to support that same goal. What should they prioritize? Where do they start? This article provides the roadmap needed. The 7 levers are a guide, a method of improvement that works for every business and it is a proven way to increase cash. The true power of the method detailed here is focusing on consistent incremental improvements, gently increasing each fundamental aspects of a business (lever) to realize major growth.
By the end of this article I hope you walk away with:
A) The power of the levers
> small improvement added together means big growth.
> 10% increase to each lever equals a doubling effect on your business.
&
B) 2 perspectives of 7 levers.
> Growth & Profit.
> I’ll share two perspectives that have similarities and differences. Both work in any business but I see one impacting top-line growth and another impacting bottom-line profit.
&
dare I say, C) tips to work on your business instead of in it.
The Power of the Levers
If I told you to double your sales or profits you would understandably see a large mountain in front of you. It would feel like an impossibly long uphill climb. Alternatively, if I told you to improve different areas of your business incrementally, aiming for 7-10% increases on each, you would see a path far more achievable. You would have creative ideas and solutions on how to get there. Even more so if I told you to focus on a single area at a time. Then move on to the next. Now you could really imagine the steps you to take to get to work. That is the benefit of the 7 levers. It distills your focus into action. You do not need to wonder if your effort will have impact. It will. Once all levers are pulled, inching just 10% further, you will have climbed that mountain and doubled your business. You just need to know which levers to pull.
7 Levers : Growth
Traffic
The people hovering around you, the store, the website, the retailers website, the social channels, etc. This lever is where typical marketing spend is usually allocated which could be an opportunity to scrutinize.
Opt-Ins
Think of these as your subscribers or people who are actively engaged, wanting to be sold to. The key is to make a distinction between Traffic and Opt-ins. By doing so, you will realize talking to the two, is different.
Conversions
Extremely critical and important aspect of any business yet this can often be an area overlooked. Get inside the mind of a customer and learn what makes them purchase your products.
Average Item Price
This could hurt volume, but you might be charging too little.
Items Per Transaction
There might be opportunities to better educate your customers on complimentary products.
Transactions Per Customer
Spending some time to think about loyalty and how you engage with your customer post purchase could reveal areas to refine.
Margin
Everyone in an organization should be aware of the break even point. The paid ads need to increase volume to offset the cost of advertising or drop in product price. The only way to know if that return is worth it is to be aware of the target margin.
Examples: Growth Levers
Here are some practical examples of why breaking the levers down into smaller 10% gains is more achievable than simply trying to double your business.
A site with 500 unique monthly visitors needs to implement ideas that will increase traffic by 50. Would a live stream promoted across your social channels but hosted on your site work?
An e-commerce store that is converting 2.3% of its online subscribers needs to think solutions to that will increase that to 2.5%. Does earnestly going through your online shopping experience reveal any area that could easily be improved? Low hanging fruit and you are already onto the next lever.
Are your customers favorite products priced for the demand? Is there already 10% more value you are providing past the price? What if you increased that value even more and started charging $139 for what today costs $125?
Are the the subscriptions services your team is being billed for all still providing worth and are necessary or have some lost their relevance? A development/ resource budget spending $356 dollars a month needs to realize a savings of $36 to contribute to margin.
Are your car wash employees asking if every customer wants the wax, “only $5 more for a lasting shine”. Every customer transaction?
You get the point. The levers enable us to narrow in on the possible action to take. The nature of the small improvement needed creates achievable work. An hour here, a day of focused work here. A week of development on another lever. And then just like that - sales are doubled.
Sales Are Cool But Have You Had Cash?
Next, I want to take the same lever concept but apply it to profit.
Wait.
7 more levers?
No, I am not tricking you into pulling 14 levers. Don’t think of this as more levers. Same principle. Different impact. Both apply to any company. Both are valuable to any business. They have areas they overlap. I have simply found their impact to be different depending on the need of the company and the business type. Another way to view the perspectives is like this:
Growth Levers are most impactful in a retail or commerce environment. They mostly grow the reach, brand and top line sales. The Growth Levers resonate well with a CMO or easily deployed with a commercial group. The Profit Levers on the other-hand, impact the cash within a business and is necessary to properly scale. Profit Levers are greatly impactful for companies manufacturing or warehousing product. You’ll find any CFO gravitates towards these profit levers to improve a company’s capital. The first 4 levers directly correlate to the company profit and loss statement and the final 3 together make up the balance sheet and calculate the working capital.
7 Levers: Profit
Volume
Doing more is an obvious way to increase profits. As a former VP of Sales I may be showing some bias in that I believe this lever can sometimes be over pulled. The growth levers detailed earlier have the most overlap and impact on volume.
Pricing
Compare your pricing against the competition, make note of changes from the last couple of years.
Cost of Goods Sold
Discuss better terms with your suppliers. Be aware of the competitive landscape.
Overhead
Go line by line on expenses. Reduce the fat.
Debtor Days
Review bad payers. Can the business be made up elsewhere? The increase here need to get cash into the business faster.
Stock Days
Narrow in on slow moving inventory to determine obsolescence plans.
Creditor Days
Keep the cash in your business by taking as long as possible to pay your bills without incurring additional expense or damaging relationships.
Examples: Growth Levers
Reducing stock days means having accurate inventory (stock-take). Your financials should match what is on the shop floor or warehouse. If not, there is probably more than 10% improvement ready and waiting for you. This is the best way to get smarter about what is moving and what needs effort.
An 10% increase on creditor days would mean taking about 3 days longer to pay your bills next month. Would there be a negative impact to your business? If not this is worth a review and a great task for your accounting team or part time accountant.
Have your reviewed your purchasing policy that guides procurement? Is there room to get leaner on inventory without losing bulk pricing? If you are not sure what or where that purchasing policy is, then you are have found an area ready for 10% improvement.
Summary
The 7 levers are an extremely powerful business management tool. The best example of its benefit being that this article reviewed doubling business and profits without discussing a new product release. We are growing by improving our current business, not necessarily adding to it. Instead, most of the principles and ideas discussed here are fundamental business management. By fully understanding the compounding effect this methodology utilizes, organizations can greatly change their course of growth and focus. An organization that regularly goes through the 7 levers and has a good innovation pipeline or product roadmap is a major threat. They are growing fast, they are increasing their cash fast or they are certainly on their way.
I hope you have enjoyed this article. It is an example of a methodology I use to help companies discover new opportunities and increase their profits. I would love to talk more about how the levers could be applied to your business please get in touch with me. If you found this valuable , subscribe to my newsletter so I can continue to help out.
Sources
The article here summarizes and most closely resembles the below sources.
I first became introduced to 7 levers through the book by Verne Harnish. Oct 21 2014. Scaling Up: Why a Few Companies Make It…and the Rest Don’t, Rockefeller Habits 2.0. Gazelles, Inc.
The growth levers closely follow the methods outlined in the book by Pete Williams. Nov 20 2018. Cadence: A Tale of Fast Business Growth. Morgan James Publishing.
