Creating an Annual Strategic Plan

In a recent unsubstantiated survey of overly worked flooring owners; creating an annual strategic plan ranked lower on the fun scale than having four impacted wisdom teeth removed without anesthesia.  However, keeping those teeth and the damage they could cause to the rest of your pearly whites is much more painful than the procedure.  The same can be said for dangers related to not completing at least an annual strategic plan!  Building this plan can be your business’ New Year’s resolution.

Creating a strategic plan means mapping out your strategy for the upcoming year.  These plans define what tasks you are to accomplish, who is going to complete them, how each task needs to be done, and the timing of completion.  These planning sessions are most effective when done with key players of the organization; “me, myself, and I” are not multiple key players.  It is also beneficial if these sessions are done offsite and conducted by an independent third party who understands the methodology of true planning.  Don’t worry there are a ton of consultants out there who can help you and it will cost a lot less than doing nothing and losing out on the gain in profits and revenues. 

Some of my clients in the past believed that creating a strategic plan meant setting goals to increase revenues by 10%, raise margins 2 points, and gain $50,000 in gross earnings.   Those items are just the starting points and what is the real meat to this exercise is to take those three topics and break them down into smaller initiatives.  For example; increasing margins by 2 points could include implementing a new pricing strategy, sign up and get trained on the use of RFMS Measure to reduce errors in estimating, and building a selling system to curb, if not eliminate entirely, the practice of negotiating on retail jobs.  These examples are a few of many that will need to be outlined with specific triggers and individuals responsible to this change and implementation.  A goal without a plan is just a wish!

Now, according to a substantiated survey conducted by Benchmarkinc, where several hundred flooring owners participated over a three year period ending 2013, creating an annual strategic plan had a substantial impact on the performance of a flooring company.     Can you hear the drum roll? 

Those flooring owners that created an annual strategic plan, in no particular order, realized an increase in:

  • Turn rates – the number of times the inventory value in $’s turn over per year
    • 6% better than the average
    • 40% better than those who did not create a plan
  • Gross margin return on investment – the $ return on every dollar invested in inventory
    • 35% better than the average
    • 49% better than those who did not create a plan
  • Sales productivity – the $’s generated by each full time equivalent that sells
    • $40,381 more per full time sales equivalent than the average
    • $77,204 more per full time sales equivalent those who did not create a plan
  • Employee productivity – the $’s handled by each full time equivalent, including sales
    • $14,515 more per full time equivalent than the average
    • $28,819 more per full time equivalent those who did not create a plan

 

  • Gross profit – profit after all direct expenses was nearly 1 point higher for both the average and those who did not create a plan
  • Pretax net income – bottom line before income and/or corporate tax was 4% higher than those who did not create a plan
  • Sales volume – total net sales (gross sales minus sales tax and discounts)
    • 31% greater than the average
    • 89% greater than those wo do not create plan

 

Many of you are probably thinking that this is all hocus pocus and this is just a way for a consultant to manipulate numbers to prove a point. The awesome thing about this survey and its output is that it was unfiltered, not slanted, and not opinion based; just pure financial performance related to the response to a simple question “Do you create an annual strategic plan?”  The financial and operating data was then compared for the set that said “yes” vs “no” and to the average.  Nothing more than that. 

 

Let’s circle back and see if this practice really affects your business.  The potential real impact to a flooring store that averaged $3,000,000 in 2014 that decides to create an annual strategic plan in 2015 looks a bit like this:  increase in sales of nearly $2.7 million dollars and an increase in net income that will more than double. Spending a couple of days working with key staff members and a consultant, building a plan, and realizing those increases is well worth the investment in time and money!