The perfect plan for growth is a recipe for disappointment and disaster.
The last thing you want as a business owner or business development manager is a “perfect annual plan,” where the numbers add up perfectly to the growth you are expecting next year with corresponding increases in spending to match that growth. Having an “imperfect” annual plan is one of the secrets to our success at My Maid Service, and it is a discipline that goes back to what I was taught when I worked at Procter & Gamble. P&G was under tremendous pressure from Wall Street at all times to be able to predictably deliver the expected results each year, so they had a detailed annual planning process that I brought with me to my cleaning company. There were a few key lessons that made it work.
Lesson One – Address All Parts of Your Business
When it comes time to create an annual plan, there is a natural tendency to talk about only your revenues and profits. This is a mistake because your company has so many other pieces you need to take into account. You need to step back and look at the entire picture. What systems are you going to improve this year? How can you reduce costs? What changes should you make for the culture of your company?
Cash flows in and out of your business for a lot of unpredictable reasons. You want to make sure as much as possible stays in your hand, right? You have a LOT more control over the money that leaves your company through client and staff retention, payroll, supplies, marketing, and general business expenses, so you need to take a step back and be able to look at the entire company – the entire working system – not just the money coming in. Also remember process improvements are sometimes just about making your business a better place to work, with a better culture and smooth running operations.
Lesson Two – Some Distance Helps
I used the phrase “step back” earlier and that was on purpose. In corporate America, we would often take fancy retreats to get away from the day-to-day business and be able to think about the bigger ideas.
You do not need to make it fancy or expensive, but I and many other successful cleaning service owners will get a hotel room, even if it is in our own town, and physically remove ourselves from the distractions of both our businesses and our personal lives for a few days to just be able to think about where the company is going and what we need to get there. You can do this alone or you can bring a few of your key people with you, depending on the size of your organization.
Another way to achieve distance is schedule the time you dedicate to working on your annual plan over the course of several weeks. Specifically, schedule several days between “planning appointments” to give your mind a chance to get unbogged. That way you’ll be able to reflect on your ideas with more clarity and objectivity than if you attempted to hash out an entire plan in one sitting.
Lesson Three – One Plus One Never Equals Two
When has life ever worked out 100% according to plan? It never does. This was one of the first lessons they taught me at P&G. When you plan on 1 + 1 = 2, you are aiming for perfection and perfection never happens.
We were always told we had to develop a plan that would get us to 120% of our goal. So if our goal was to sell $1,000,000 of a product we needed to create a plan to sell $1,200,000 of a product. If everything worked as or even better than planned plan, we could always hold back on launching some parts of the marketing plan to be saved until next year. But if any single part of the plan did not work, it was never a disaster because we had back-ups built in from the start.
So let’s say we have a company that grew from 100 to 120 clients last year and saw 20% revenue growth. In 2015, we want to grow 20% again to 144 clients. If I really wanted to be sure I would hit this number, I would work on a plan that would get me to 173 clients next year.
Lesson Four – Spend Like Nothing Changed from This Year
Here’s another lesson from P&G: do not build your budgets around the PLANNED revenue for next year because you have not actually delivered on that growth yet. Instead build your plan only around what you were able to achieve in current year.
This one is a little more complicated because what it means is you need to do the math and assume you sell the same number of clients this coming year that you have already sold this year. Then you need to assume you are going to lose the same percentage of your clients next year as you did this year. This should mean you are forecasting your growth to slow in the coming year. Now use this number to create your budgets for 2015.
Let’s look at the same example company from above. Let’s say you had 100 clients when 2014 started and in 2014 you added 60 new clients but you lost 40% of your clients; you ended the year with 120 clients. In 2015 you need to build your budget around starting with 120 clients, losing 40%, and gaining 60 new clients again. Thus you will end the year with 132 clients or a 10% growth rate. This is the revenue number you need to build all of your budgets around because these are the results it is proven that your company can deliver. So when it comes to things like marketing, office staff, and other overhead, I should only plan on spending 10% more next year than this year.
These last two lessons can seem brutal when you first look at them. In this example, I would need to create a plan to grow a company by 44% in revenue growth with only a 10% increase in overhead expenses. I know when these rules were first explained to me at P&G, they seemed impossible. But an amazing thing happened every year. No matter how crazy it seemed at first, we could almost always find a way to make it work. And while it put a lot of pressure on us in the planning process, it made the entire coming year so much easier because not only did we have plans, but we had plans that were not built around perfection.
Let’s look at the example company above again. Most people developing an annual plan with a growth goal of 20% would develop a plan that looks like this.
- Starting Clients 120
- Ending Client Goal 140
- Loss rate 40%, so we need to sell 68 new clients in 2015.
- To do this, we can spend 20% more on marketing and other overhead expenses.
They decide to spend all that extra money on an AdWords Campaign to boost sales.
Now 2015 rolls around and that AdWords campaign did not work as well as expected and you have only 60 new clients, ending the year at 132 clients or an 10% growth rate. But you had expected revenue to be up 20%, and you spent on overhead like it did. Result: your profit drops to next to zero because your expenses grew faster than your revenue.
Now let’s look at how a company would plan using the process I outlined:
- Starting Clients 120
- Ending Client Goal 140
- Loss rate of 40%, so we need to plan to sell 101 new clients to give us 20% more than we need to hit goal.
- We can only plan to increase our overhead expenses by 10% all year. You decide on a more modest AdWords campaign and a several other cheaper referral and networking plans.
Now when that AdWords campaign does not work, it is okay because you had back-up plans. Yet despite all the back-up plans, you only sold 65 new clients in 2015, meaning you ended the year with 137 new clients or a 14% growth rate. You are bummed you missed your revenue growth target, but because you only increased your overhead by 10%, your profit for the year is actually up closer to 20% because revenue grew faster than overhead even though you missed your revenue goal. Now even when you miss your goals you still make more money.
Lesson Five – Review and Adjust
At least once a quarter, you need to look at your actual results versus the plan and make course corrections. If you have followed the processed outlined above, your initial planning is going to be much harder but these quarterly reviews should be relatively simple. Since you planned for 120% of the revenue you needed, you may actually find yourself in the enviable position of having to decide how to slow down the growth a little bit until your organization can catch up. Do not be afraid to delay parts of the plan if you are growing too fast; if things change, you can always use them later in the year to give growth a kick.
If despite all this planning you are still coming in behind, sit down and develop a gap plan. What is the difference between your current rate of growth and what you actually need and what you can add to fill that gap? Then implement this gap plan with the entire organization to get back on track.
These five lessons are how huge multinational companies can deliver consistent growth that is on plan quarter after quarter. Using these same principles in our own organizations can drive the same discipline and consistency. Planning for an imperfect future may be hard, but it is a lot easier than going into an unpredictable future with a perfect plan that can’t handle life’s unexpected challenges.
Derek Christian is the owner of My Maid Service with locations in Cincinnati, OH and Dallas, TX, as well as a business coach through Cleaning Business Builders and publisher of CleaningBusinessToday.com. Derek is now an investor in several cleaning companies including My Maid Service Dayton and Real World Services Columbus. Derek is also a consultant for industry leaders Blue Skies Services and Castle Keepers.