People have been jerry-rigging work from home spaces for months now, and no one is expecting a large scale return to former offices any time soon. It turns out that this unmooring is impacting revenue for a variety of reasons. The chief reason is not what you’d think: declining purchases from clients and customers. It’s something much more foundational in most companies: their definition of productivity.
You have two options: 1) force the new normal into the boundaries and expectations of the old when it comes to time; or 2) redefine productivity so that it no longer connected to time. We urge adopting option #2.
Productivity and Revenue
The vast majority of professional and other services firms tie revenue to one specific unit of measurement: time. Most firms work on the premise that revenue dollars are associated with time. There may be some revenue from products, materials and tools but for most services companies, time is money.
Each 60 minutes is supposed to generate X dollars of revenue. When the firm achieves that target it believes it is productive. When it falls short of that target it takes measures to increase revenue per hour.
You define productivity in terms of time: hourly rates, billable hours, full time equivalents or the like. You forecast how much revenue is generated in a period of time.
“We generate X revenue per Y unit of time.”
When you track this over months, you determine the range from low to high. You use this range to assess each individual’s performance which is what you label productivity.
Doing this shortchanges your revenue.
The Argument for Productivity=Outcome
In the next normal, which you and I and every other business owner are in the process of creating right now, productivity will be separated from time: both the quantity of time and the occurrence of time during the day.
Productivity instead will be connected to outcomes. You can define outcomes in many ways: dollar value; increases or decreases in relevant factors; pieces of intellectual capital (leases, contracts, P&Ls, remodeling designs, compliance certificates) produced; products such as webinars and online training; and services such as coaching, mediation, or one-on-one instruction.
All of these have a quantitative, qualitative or combination value. Your company and your buyer determine this early in your sales process and the purchase order or contract has to be explicit about this. Of course there should be a due date, or a period of performance. Neither buyer or seller benefit without these parameters. But it is clear that the seller is not selling time and the buyer is not buying time.
When your system records the sale and the due date, you have only to track one thing to measure productivity: was it delivered on time or early? If yes, you’ve achieved high productivity. If no, you haven’t and you have to work out why.
No Longer Tracking Time the Old Ways
We have already seen that time at work is seriously affected now and for the future. When everyone worked a set schedule, as in the old paradigm, it was pretty easy to keep track of time. Working from home, and working via different media, changes the use of time.
You’re delivering intellectual capital which by definition means it’s not something you take off the shelf and deliver to the recipient. Intellectual capital creation moves at varying speed, sometimes quite fast and others time slower or very slow. Your revenue should not be subjected to the speed. It should be tightly correlated to the value of the outcome.
The more value you can create in the time you have, the more revenue your company will generate. It is that simple!
Don’t Do It Yourself
Owners are so busy and it’s often hard to make space in your head for one more thing. That’s why the most successful choose outside help when something new implodes long-time practices. Trivers Consulting Group will provide that help, whether it’s a deep dive into the whole company to thrive in the next normal, or it’s a targeted task such as redefining productivity. Give us a call for an exploratory conversation. If there’s a great fit, you’ll have options for our engagement. Email or call 703-801-0345.