John Linton
The one thing that is certain in setting up and operating a small company is that you never have quite enough money to do all the things you want (need?) to do but you comfort yourself with the thought that one day in the not so distant future you'll have grown the company to a point where "economy of scale" will produce that extra amount of monthly profit that will allow you to buy those extra bits and pieces and cut back your working week to less than 80 or 90 hours.
I was reminded of the fallacy of this thinking when some kind person posted a comment on one of my entries in this diary pointing out to me that InterNode had in fact been listed in the recent BRW To 500 Private companies listing (at 446) whereas I had said I could only find one company (Go Talk Communications). The only reason I had commented on the article was:
a) The lack of private communications companies of any size
b) The only company listed seemed to be very inefficient based on revenue per employee
Go Talk was reported as having 320 employees with a revenue of $A136.5 million giving an average revenue per employee of around $426,000 which appeared to be very low to me given the nature of the services advertised on the GoTalk web site which seemed to be cut throat priced telephone calls and calling card minutes. However, I have obviously got no knowledge of their actual margins so I can't comment further.
Obviously large, public, telecommunications companies publish their annual results which obviously include revenue and profit and also include, mostly, other data such as number of employees. If you were to check the latest annual reports of these companies you would see that Telstra (obviously by far the largest and with by far the largest margins) reports not only a handsome nett profit but their revenue per employee is a little over $A403,000 - almost the same as GoTalk's.
The kind person who corrected my error by pointing out InterNodes entry in the article I referenced (and I'm always grateful for being able to correct any wrong statements I make) also made me consider what the meagre data provided in the listing actually meant. The only data available was that Internode had a revenue in its latest reporting year of $A88 million (which was an increase of 54% on the previous year) and had 304 employees (which was a 51% increase on the previous year).
It seemed very odd to me that a medium sized communications company would have so many personnel and that their revenue to employee ratio would be so much worse ($A290,000) than Telstra's which, even after Mr Trujilo's 'slashing and burning' seems to continue to be grossly over staffed and very inefficient (except for the profits which are very, very good - but then Telstra does enjoy monopoly pricing).
There's no reason to doubt the figures provided by BRW.
However......
Exetel's revenue in the past financial year (presumably the same period as reported on by BRW) of around $A30 million compared to Internode's revenue of around $A90 million - meaning InterNode is three times larger than Exetel in revenue terms.
Exetel had 30 employees at the end of the FY2007 reporting period and, presumably at the end of the same reporting period, InterNode had 304 - meaning Intenode has ten times more employees than Exetel but only three times the revenue.
The figures for GoTalk are slightly better (4.5 times the revenue with 10.7 times the number of employees).
Clearly both GoTalk and InterNode make huge margins on the services they sell (alternatively they get an awful lot of Federal and State Government subsidy money) otherwise they couldn't stay in business - the monthly salary bill would bury them.
As I doubt that GoTalk gets any type of government subsidy the reality must be in the profit margins which means that both of those companies must buy at significantly better rates than Exetel is able to do.
I very much doubt that Exetel is ever going to be more efficient than it is today (around $A1 million in annual revenue per employee with an all inclusive remuneration cost of around 6% of revenue).
How I can reduce the current supplier costs to match what other communications companies must be paying is not something I have the remotest idea of how to do.
Maybe it's past time to find a replacement who can do that.