Numbers don’t have intrinsic meaning. What would 10 mean to you if you didn’t understand the number 1? Numbers have meaning because you’ve learned context or relationships. When a kid first learns numbers, they just learn the names of the numbers. When they learn to count, they see various groupings of objects and the word associated with that grouping. Eventually they internalize that context gives the meaning to numbers. As we become more experienced, we learn that numbers can tell complex stories if we look for them.
Here’s how one firm recognized 6 stories from its Profit & Loss statement. These stories also helped the firm crack the pricing code.
Revenue Numbers Conceal Many Stories
The year-end P & L statement for a niche consulting firm (subject matter experts in their field) showed sales this year at $2,546,375. Last year sales were $2,768,003. Story #1 is that this year’s sales were less than last year’s.
Looking deeper into the numbers, we see that the revenue total represents the purchase of 7 different services by 531 clients. Two of them were sold just a few times for low fees. Two of them brought in 50% of total revenue. The others were in-between. When we look at the buyers, we see a certain set of characteristics are held by about 65% of the buyers of the two top selling services.
Story #2 is that the two lowest selling services are consuming resources that could be used better elsewhere.
Story #3 is that there’s a distinct profile of buyers for the best selling services and the company would benefit from concentrating on building its relationships with those people and others like them.
Story #4 is that marketing, sales, and customer service should focus on these buyers and these services. The firm’s systems (CRM, invoicing, sales agreements/contracts) should be designed to support the sale of these services. The firm should establish a team that develops new services that provide additional value to this set of clients.
These four stories are embedded in just the Revenue line of the P & L statement.
And there’s more! The best story tellers look for hidden opportunities.
In this firm’s case, a huge barrier to higher revenue—Story #5– was hiding within the revenue number. It was the firm’s choice of how they charge. They used hourly billing to charge for their services. In a nutshell, they sold their dominant expertise the way grocers sell milk. By the unit, without differentiation based on ingredients. What doesn’t sell spoils and is lost forever.
Next Year’s Story is Being Written Now
The CEO/Founder of the firm resolved to implement changes based on the stories they uncovered in the P & L.
The first step was to discontinue the two low-revenue services. They encouraged the clients for those services to consider other options that deliver more value. Some did, some did not. Either way this was a growth tactic.
Next, and most important, is that they committed to cracking the pricing code. They studied the 25% of client engagements that generated the highest fees. What did they have in common? What could be added? How could they build deeper relationships with those clients? The CEO understood that this was a months-long effort. We allocated 4 months to visit with every client and ask questions about other value they would love to have from his firm.
They learned a lot from this 4 month effort. It turned out that almost everyone wanted more help and didn’t think the firm offered it. The firm didn’t promote that they offer this because they didn’t know their clients wanted it!
They also discovered that their best clients, those who sought the most value, were enthusiastic about value based pricing. This discovery, Story #6, was the key to cracking the pricing code. The best clients want pricing that reflects the value the firm delivers.
They were able to project a 23% increase in revenue in the next year just from these new services, offered for fees commensurate with the value delivered.
What Stories Are Embedded in Your Numbers?
I could go on, but you get the point. The numbers on your P & L have stories buried within them. If you make the decision to look for them, and then plan based on what you learn, you can increase revenue with the resources you already have.
If you’re curious about the stories buried in your numbers, let us know. Text NUMBERS to 703-801-0345 so we can talk.
