Editor’s note:The following is a guest article by Brian Lim, founder and CEO at Emazing Group Brands, and Ben Oliveri, writer at QuickBooks Enterprise
It’s easy to get caught up in the day-to-day hustle of relentlessly growing your business. But despite your best efforts, business growth isn’t always steady and linear.
As an entrepreneur, it can pay to slow down and take stock of your operations so you can move forward with increased visibility and efficiency. Think of race car drivers who put on the brakes going into the bend so they can accelerate through the exit on to the straightaway.
Over the past 10 years growing EmazingLights, iHeartRaves, and INTO THE AM (our three operating companies under parent Emazing Group) into over $30 million in revenue, there have been points of frustration that gave me pause. Our team of 80 turned these frustrating moments into opportunities to learn, build, and adjust so that we could continue with greater confidence and purpose. Two of these “pauses” stick out as key events that helped to define a more focused management approach for the Emazing Group. We used these pauses to:
- Build a framework for contribution margin insights to guide daily decision making
- Slow down to build standard operating procedures (SOPs) into our company culture
With better insights into our finances and well-documented SOPs, our team was able to work more efficiently towards healthy growth.
Make smarter decisions with contribution margin insights
Monthly revenue reports are great, but they can be misleading independent of a profit and loss (P&L) analysis. This is especially true in e-commerce—when you’re making and shipping products daily it’s key to understand your numbers on a granular level. For example, you can juice your social ad spend and smash your top-line numbers, and not realize you are actually losing money until a month later when you see your monthly P&L. In this industry, even two weeks is a long time to continue misusing funds.
I knew Emazing Group needed to do something different when we would get our P&L report 15 days after the end of the month, and realized we weren’t hitting our forecast projections.
To get a better handle on our day-to-day P&L, we hired a fractional CFO who had a strong understanding of our industry benchmarks and was able to help us create a system to measure our financials on a more granular basis.
With the help of our outsourced CFO, we created a daily contribution margin sheet that allowed us to see which sales channels were most profitable, and which ones weren’t. At Emazing Group, we look at seven sales channels that aggregate into one sheet that tells us how we’re doing.
Contribution margin is not as complicated as it may seem. Every day, our brand managers update our contribution margin dashboard with data from all of our sales channels, our gross margin, and variable expenses. Because we have a good handle on our fixed expenses, we can look at this dashboard and ask, “Were we profitable yesterday?”
We can attribute each sale to a specific channel and see which products were the most successful. Based on these insights, we can adjust our ad spend, inventory planning, and make more accurate demand forecasts to make sure we are profitable the next day and the next week.
As opposed to an aggregated monthly report after the fact, more granular tracking of contribution margin can help you better identify underlying profitability issues. With a daily or weekly breakdown of variable expenses, and sales through each channel, it is much easier to see where expenses may be ballooning and eating into your profit.
Building a framework to gain daily or weekly insights into your P&L may take some outside expertise and time to fine-tune. Bringing a fractional CFO on board should be an easy first step. Ask your current CPA for referrals, dig into your network, or use a sourcing company like TGG. Be sure to get several candidates and do your own vetting.
Once your contribution margin system is in place, the ability to make informed micro-decisions to move the levers of profitability is well worth it.
For the Emazing Group, building mechanisms to better track our finances was part of a larger project of defining SOPs in all core business areas.
Slowing down to build SOPs
As your business grows and you build more processes specific to each team and department, there is a growing risk of accumulating undocumented tribal knowledge. Without a reference document of agreed-upon practices, miscommunication and errors are far more likely to occur.
Documenting standard operating procedures can be time-intensive and team leads may initially drag their feet, but having well-documented SOPs on-hand will prove to be a great asset in the long run.
To get the ball rolling, it can be helpful to nominate an in-house champion for each process, or delegate responsibility to managers and let them determine the best way to document their team’s processes. When prioritizing where to start, think about which processes are vital to your internal operations and keeping your customers happy. Here are a few to get you started:
- New client onboarding
- Order fulfillment
- Help desk and order trouble-shooting
- New employee onboarding
- New product launch
- KPI tracking and reporting
These are just some common examples, but to the greatest extent possible, every repeatable process should be documented. The more detail the better. Screenshots with notes and arrows are welcome. SweetProcess and Google Docs are some basic tools that can help you maintain your SOP documents.
Also, keep in mind these should be living documents. Just because you have it down to paper doesn’t mean you should “set it and forget it.” Teams should revisit SOP documentation every six months or so to see if they still match current business needs and adjust accordingly.
Putting SOP documentation to the test
The best way to put your SOP documentation to the test is to put them in the hands of a team member who has never performed that particular task before. If they can read the documentation and successfully complete the task, you’ve hit the mark. If they struggle, your documentation may need a little more work.
The true test of your SOP documentation, and the most important reason for conducting the exercise in the first place is in the event of turnover. Whether planned or unplanned, coming or going, human capital transitions bring an extra burden to the staff that remains. Strong documentation can be a lifeline that keeps business humming along uninterrupted.
For example, at EmazingLights we are currently undergoing a major transition of a department head. With 12 core areas of responsibility, these are big shoes to fill. But because we have detailed documentation for each of these 12 processes, the rest of our team is able to pitch in to keep things moving forward. At the same time, our new hire can use that documentation to get up to speed.
Don’t reinvent the wheel
Part of standardizing repeatable processes means using existing tools to avoid reinventing the wheel. Developing and maintaining software has a substantial cost over time. If you’re not a tech company—don’t try to be.
For example, an online retailer that relies on one or two in-house developers to customize their IT infrastructure will have a real crisis on their hands should one or both of those people move on.
Enterprise software, on the other hand, is maintained for you by a team of third-party professionals. At Emazing Group, we use QuickBooks Enterprise for all of our bookkeeping, so we can track all project finances and easily export our data.
Web-based enterprise tools have built-in processes with on-demand tutorials that your team can access from anywhere. Our bolt-on inventory and shipping logistics solution also provides us with pre-built processes for workforce management, resource planning, purchase orders, order fulfillment, shipping and tracking, and more. Because these are cloud-hosted solutions, we don’t lose sleep worrying about a system crash or loss of data.
Focused insights and well-documented processes are key to healthy growth
For the first five years or so of managing the Emazing Group, we had limited visibility of how our finances moved beyond monthly reports. It was only after taking the time to build a structure for more granular P&L insights that we could see how we were doing day-to-day.
The ability to measure performance and make micro-adjustments on a daily basis can serve as a springboard for healthy, sustainable growth.
Likewise, as your company grows, well-documented SOPs serve as a foundation that keeps the car on the race track, regardless of who the driver is.
This article was written by Brian Lim, founder and CEO at Emazing Group Brands, and Ben Oliveri, writer at QuickBooks Enterprise.