Why Efficiency Matters

Two of my all-time favorite designers, and longest standing clients (and friends) now work together—Laura Britt and Tim Schelfe of Britt Design Group in Austin. Both attended my events and joined my coaching network as early as 2005.

They’ve both been incredibly successful on and off the interior design playing field. Tim sold his first design firm to a large architectural firm and became a partner there before heading west to join forces with Laura. (From Raleigh.) He’s a former president of ASID.

And Laura has gained enormous publicity for, among other things, building a LEED Platinum home for herself and her family. She had hoped to renovate the original home but when that became architecturally impossible, had it carefully disassembled and moved…giving it away to a needy family.

I heard from Tim a few days ago and his email said this:

Laura and I are taking this time to streamline our processes, improve project efficiency, and really get our collective “act together” so we’ll be poised and ready for this Explosive Growth!

I couldn’t give better advice. The goal here is efficiency, but sometimes people lose track of what that very simple concept means. I’ve found it’s often easier to explain with an example than with a textbook definition. One way to do it is fairly simple—figure out how much it costs you to generate one dollar of sales. Or of gross profit. Or of net profit.

This can easily be determined from your P&L statements, but the key is to compare periods. Annual statements for the past three years versus a 2020 year-to-date statement would be a good place to start. Here are the highlights from a firm I found in my archives:

Sales $1,350,000
COGS $810,000
Gross Profit $540,000
Expenses $391,500
Net Profit $148,500

Now, let’s do some really simple math that you probably have never done before. We could use targets of top line sales or gross profit, but I think I’ll skip straight to the bottom line and ask this crucial question:

How much is it costing this firm to generate $1 in profit?

The answer is $2.64. (Expenses divided by Net Profit.) In this case, you’re spending $2.64 (expenses or overhead) to generate $1 in profits.

Now you know that when we are talking about improving your bottom line, the lowest-hanging fruit is always with pricing. (If you haven’t attended an information session on my new course, “Getting Pricing Right” you owe it to yourself to do so. Click HERE to register.)

But when we talk about “efficiency,” we must really focus on expenses. And the definition in this case would be:

How can we generate a higher net profit on the same or lower expenses?

In other words, how can we reduce our cost to generate every $1 in profit?

Finding a way to streamline systems, reduce redundancy, pare overhead, reduce the number of vendors you use, train better, document better, shift incentive plans, and on and on could perhaps lower the expenses of this firm by, say, 8%. That would bring expenses down to $360,180 and increase Net Profit to $179,820.

And that would reduce the cost to generate a $1 in profit from $2.64 to only $2.00.

That’s how you define efficiency. Why not do this math and set a goal for yourself. Can you become 8% more efficient? Please share with me if you can.