Using Throughput to Drive Sales Profitability

Jun 6, 2023 | Competition, Employees, Growth Tips, Leadership, Management, Peer Groups, Planning, Strategy

Did you know that you can use “throughput” to guide your sales team on which sales to go after, and even how to price them?

Here is a brief case study, with a resource (podcast) at the bottom for you to learn more.

Using Throughput To Your Advantage

I met this spring with a green roof company. (They had been to many of my events and finally pulled the trigger to meet with me.)

The two owners brought their team to NOLA where we performed a two-day strategic review of their entire business, top to bottom.

When we got to the financial analysis, we uncovered something interesting.

They were making quite good profit, but their overall performance was covering up some weaker performing sectors.

Within their install division, they had a mix of higher profit work (design build and some bid-build) and less desirable work (other bid build work.)

Given the difficulty of staffingand their mixed results, we urged them to measure the throughput of their different types of work, to better understand what was driving their profitably.

This analysis would help them make final decisions on the type of clients they would pursue in the future.

Definition of Throughput: Net-Net Revenue (revenue minus the cost of materials and subs) divided by Labor-hours.

Tracking throughput allows you to understand how much profit you make from your most valuable resource: your people.

Some companies focus on tracking the Revenue / Hour.

While this simple metric can be useful in some sectors (irrigation service) it doesn’t do justice in installations where high sub and material costs can skew results.

These jobs can look lucrative but actually deliver low profit per hour.

Your Challenge: Empower your team to make use of the throughput metric.

On a micro scale:

Your sales team can measure the throughput of a job before they complete a sale.

When a job shows a low throughput (below the minimum benchmark you want to hit) the salesperson can be alerted to raise the mark up to ensure a minimum standard is met.

On a macro scale:

Your sales and operations managers can assess the average throughput of each sector, and decide on where to put your marketing dollars and operational focus.

To learn about this and more, listen to my podcast (The Ultimate Landscape CEO) from March 2021 that I made with 3 leaders in our industry who understand how to use throughput to your advantage.

Podcast Episode #170 – Using Throughput To Drive Profitability.

Regards, Jeffrey Scott