John Linton
.....Why Don't You Do A Lot Better?
I spent some time yesterday re-calculating and checking through some of the financial assumptions for the the current and next financial years and providing some final information to our tax accountants for last years tax return. In the course of doing that I made and received a series of telephone calls replying to questions and seeking clarifications. One of the questions they asked me was what I used as the 'heading' of this post. They, as a standard end of year service, provide their take on the 'health' of the businesses they prepare tax returns for among which are the base ratios of various aspects of the company's operations. Some of the main ratios are:
Number of employees to gross revenue (1:$A1.35 million)
Number of employees to after tax profit (1: $A12,600)
Acquisition/support employees to customers (1:4,200)
Monthly gross payroll dollars to number of customers/services (1:0.4)
Monthly gross expense dollars to number of customers/services (1:0.5)
and their movement from year to year.
They provide these figures for the current year and for the previous years and they also provide 'averages' and 'highs and lows' for comparable industry types.
It's pleasing, for us, that our ratios have improved each year since we commenced in business. It's also pleasing that our ratios are well above the 'industry' averages used and in all but one ratio are above the 'top performing' level for 'our industry'.
Except for one.
The ratio of profit to number of employees is not only below the 'average' for our industry but it is at the bottom end of that spectrum - by a long way. This lead to their conclusion that Exetel doesn't charge enough for its services and that will continue to be a problem which will prevent the company investing in the infrastructures it will need to fund over the coming years. Their recommendation was to increase all prices by a minimum of 10% as soon as practically possible.
That would be a very tempting thing to do and doubtless it will find favour in a number of 'quarters' within Exetel.
I thought about the recommendation over night and considered the tyranny of numbers that lead to these sorts of scenarios. I have no quarrel with the fact that Exetel makes very little money compared to the investment in the business and the enormous efforts that are put into operating the business on a daily basis. However, looking round the available published data for companies in the Australian communications business very few, if any, companies made very much money in their first five years in business and many/most lost money (based on the information available). There are obviously exceptions and I may have the wrong ideas but I can only base my opinions on what I see published and reported.
However, it is obviously an anomaly that we don't make more money, in a purely commercial sense, than we do - basically we are content not to make a loss after paying cash for all equipment needed to operate a constantly growing business. I explained to our accountants , one more time, that our reasons for doing that are based on our reason for being in business - to offer the lowest priced services available from any Australian provider. This is a concept that is so alien to them (as they said - "we've never come across a business that didn't want to make as much money as possible") that they have never grasped it even after having the same conversation every few months for the past almost five years.
Fortunately, as I'm more than aware of their per six minute charging regime, I don't extend the 'non-core' conversations beyond the minimum time required by professional politeness - but I do sometimes think that providing services at charges below every other provider is more than an onerous burden on an increasing number of occasions. It was a timely reminder that, in setting future prices for current and new services, even more care has to be taken in ensuring that Exetel's costs are maintained on a constantly lowering basis both by 'negotiation' with suppliers and by more efficiently designing and implementing our processes and procedures.
It's a pity all this incredibly hard and productive work doesn't get me the sorts of financial rewards other people receive for selling services at sky high prices and never delivering operational efficiencies even when they are paid $A15,000 a DAY - (more than I earn in a month!).
http://www.australianit.news.com.au/story/0,24897,24278548-15306,00.html
Oh well, I guess I continue to pay the price of continuing failure in my commercial life.