Remember the ‘1% Rule’
“Impossible Target”.
Let’s imagine that you have just been handed a business target. It may be that you are a business owner and that to keep/get your business profitable, you need to significantly improve your ‘bottom line’ profit by at least 30% by the end of the year. You may be a Salesperson that has been handed your annual target that is 20% higher than it was last year.
The usual reaction is: “Where do I find new business or a sale that will increase my results by 20 to 30%?” The concept is daunting. It can lead to a feeling of desperation and futility which can then result in non-productive personal anxiety or worse, giving up entirely.
Don’t despair or give up! First, take a breath, remain calm and determinedly re-assess the situation to discover what it will take to improve the overall performance.
Use the “1% Rule”.
The ‘1% Rule’ is:
If you improve your results each week by 1% over the previous week, you will have improved your weekly results by 66% at the end of a year and your annual results by 30%.
Using the 1% Rule changes your emphasis. Instead of ‘working too hard’ to find and achieve the 20 to 30% increase, you now look for the 1% improvement that you can consistently make week over week to achieve your target.
Do your sums.
If you are proficient with a spread sheet, create a sheet that has your current weekly performance in the first column. If you are not good with spreadsheets, get someone that is to help you.
In the next column, insert a formula that multiplies each previous week by 1%. You will see that the result is a 66% improvement on weekly sales at the end of 12 months (52 weeks) and that your annual results have increased over 30%.
You don’t need to focus on a scary number of 20 or 30%. You can focus on a much more acceptable increase of only 1% per week that will mean that you will go past the 20% year on year improvement at week 49 and the 30% improvement year on year at Week 52.
Note: Gain professional financial advice to ensure that your calculations are valid.
Where is the 1%?
This is the question that must be addressed, not “How do I do 20 or 30%?”. Now you are not working too hard, you are investigating the 1% opportunities that are far more believable and achievable. Expand your spreadsheet to include 1% incremental increases across all areas under your control.
Business Person.
If it is business profit (EBITDA) improvement that you require, in conjunction with your finance professional, investigate how you can improve ‘the top line’: your total sales, increased Gross Margin and a combination of both. It may be that you can change the emphasis in your marketing to not only increase the volume of sales, but to expand into more profitable lines or remove product lines that are low GM whilst creating expenses that reduce the ‘bottom line’. You may be able to improve your overall GM by value adding products with services that better utilise your current resources. Where the market allows, it may be time for a price increase to improve margins or to reduce prices for product/service lines that will result in a significant increase in sales as long as the net GM from this exercise is an overall increase.
Analyse the expenses in the business and see where you can make incremental reductions in the expenses over and above the improvement in sales and GM.
Remember, it is a 1% improvement week on week that you are looking for. Take care of that and the 30% will happen by default.
Sales Person.
If you are a sales person, do your spreadsheet and have it verified by a professional finance person to include:
- The $ amount of each product/service that you sell per week
- The price of the products/services that you sell per item
- Your call rate/activity
- Your pipeline by sales stage
- Your close rate.
Using this information, you can identify where your ‘1%’ will come from. It may be that you are spending too much time selling low $ items. You may have a huge pipeline meaning that you can focus on getting your 1% by accelerating leads/opportunities through the ‘funnel’. Your call rate/activity may be too low so a 1% improvement in activity for the first few weeks could mean that you fill up your pipeline and focus on accelerating/closing opportunities to get the ongoing 1%.
The permutations of the above business and sales example are endless.
It’s only 1%.
In all human endeavours, achieving massive results comes from continually doing incremental activities. Weight Lifters don’t start out lifting record weights. They begin with lifting what they can and adding small amounts over time. Marathon runners don’t start by running record 42.2Km races. They begin with shorter runs at slower times, build up to faster runs, then extend the distances doing various other exercises to reduce their time per kilometre.
Business is no different. Whilst we like to hear about the ‘Legends’ that make huge increases, these are rare and highly unpredictable. Consistent 1% improvement gives us something that we can conceptualize, work at on a daily basis and where we can track the incremental results on a weekly basis whilst making the necessary adjustments to stay on track.
Can you walk 1,000 Km?
That is a big number. Many people would be shocked to consider it and their immediate reaction is “No way!”. That is because they imagine it all in one journey. Now, change the emphasis to adding “…in a year” and it now becomes far more realistic and believable.
The Proverb states “The 1,000 Km journey begins with just one step”. After that easy first step, all you have to do is consistently keep on adding one more step at a time, broken down into daily amounts. Last year I completed 1,200Km running and hiking so I can assure you; it’s not too hard.
You can do 1%! You can make your numbers!
Like the 1,000 km journey that is merely an accumulation of singles steps, you can make significant improvement in your results by taking ‘1%’ steps.
Philip Belcher ©
DISCLAIMER.
The above is indicative only and offered expressly as a general guide. Every situation is unique. You should seek advice from a qualified accounting/finance professional to get the appropriate advice for your situation. LSE Consulting Pty Ltd is not a certified financial advisor and accepts no responsibility for actions taken purely based upon this article.
About LSE Consulting
LSE Consulting is a specialist management consulting company. The purpose of the company is to assist business leaders to improve their organisation’s results, turn around underperforming businesses/business units and to be prepared for successful exit.
The LSE Consulting method focuses on Leadership, Strategy and Execution, hence ‘LSE’, with a strong emphasis on business strategy aligned marketing and sales.
The company was founded by Philip Belcher to assist business leaders through interventions that are based on his and his industry leading associates’ experience in leading, turning around and successfully exiting ICT, high technology and other businesses.
For more information see: www.lseconsulting.net.au and use the Contact Us page so that we can discuss your needs...
