Revenue Potential per Month (RPM) is something I’ve developed recently, that’s a really powerful tool to help you understand what the earning potential of your business is.
What does RPM mean?
Well RPM means revenue potential per month.
Revenue potential per month is based on the total amount of resources that you have available to you in your business and is what should be your maximum achievable level of turnover per month before you start to over stretch yourself.
When you overstretch yourself you get to a point where you have too much work to deliver for the resources that you have and therefore you start to produce and deliver work less profitably because everybody’s stretched, everybody has got too much to do and the resources of the business are spread too thinly across tasks.
So this is a great tool that allows you to figure out, based on the number of staff you have, the resources that you have, the assets, machinery, plant, equipment, all of those things, based on those fixed assets and your staff, both admin, operational and non-productive staff are all assets in your business.
Based on the assets in your business, what’s the maximum level of turnover that you should be achieving if your business is operating out 100% efficiency?
So we use this tool to enter some basic numbers and calculations which tell us what the maximum revenue per month should be.
And what that does is it shows us what the gap is.
I love this principle of the gap, because it shows us well if we should be doing say 50k per month in revenue, but we’re currently only averaging 35K per month, then we can see them very clearly that the inefficiencies, or the lack of systems in our business, the lack of proper effective and efficient procedures and processes is actually costing us the difference between 35 km and 50k a month.
Now that’s interesting and it’s a really focusing thing to look at, because straightaway there you can see that as a result of perhaps inefficiencies, perhaps of a lack of processes, perhaps the lack of accountability, or poor communication in the business – there can be lots of different reasons. But actually we can see that in this example, those things are costing this business, in opportunity cost, 15 grand a month. And what’s worse than that is that it’s not 15 grand a month. So if it’s costing 15K a month, what does it actually mean? Well what that actually means is we’ve got 15K times 12 months.
That’s the real size of the problem.
£180K per year.
So actually this problem that we’ve identified, just by running some simple numbers and finding the gap in the business, shows us that we’ve got a hundred and eighty thousand pound problem in our business.
So now we can make some educated decisions around how we solve that problem. Look if you’ve got 180,000 pounds which your leaving on the table of opportunity cost because of lack of systems or a lack of efficiencies and that’s something, I’m sure you can agree, you need to get this problem handled.
I ran this equation through with a product supply business at a mastermind I was presenting at a couple of weeks ago. It doesn’t matter whether your business is a service business or whether it’s a product supply business or whether you’re a sales company or a events company, you can run this for any type of business.
And what we found was this, we found that their turnover was £1 million a year. Now that sounds great but when we ran their business through the RPM what we found was that actually their potential revenue, that should have been able to be generated by that business at full capacity, was actually £3.6 million per year.
So this starts to get a little bit scary, because there we can see what’s the gap the gap is £2.6 million per year.
That’s a £2,600,000 problem.
I’m sure you’ll agree that is a pretty significant size of a problem and so just by increasing efficiency, increasing effectiveness, changing some of the ways that the business is run they could get an extra 2.6 million in revenue. Without taking on any more premises, without taking on any more staff, out of just that the business.
This is really powerful stuff. But the point I’m trying to make is, is that it’s really important to get clear on what you’re talking about, when you’re talking about growing a business.