The Seven Levers That Decide Whether Growth Pays

Every growth plan, however it's dressed up, comes down to the same handful of numbers. Get them moving in the right direction and growth turns into profit and cash. Leave them alone and you can grow sales for years without the bank balance moving.

There are seven of them.

The seven levers

• Price: what you charge
• Volume: how much you sell
• Direct costs: what it costs to deliver each sale
• Overheads: the cost of running the business
• Debtor days: how long customers take to pay you
• Stock days: how long stock and work in progress sit before they're billed
• Creditor days: how long you take to pay suppliers

The first four move profit. The last three move cash.

The Power of One

The idea, known as the Power of One and developed by Alan Miltz and Gary Monkhouse, is to ask a simple question: what would a 1% improvement in each lever be worth, or one day on payment terms?

Here's the answer for Brightwater Fabrications, the fictional example from our Levers for Growth guide: £4m of sales, a 40% gross margin, £1.2m of overheads and £400,000 of operating profit.

• Price up 1%: +£40,000 profit a year
• Volume up 1%: +£16,000
• Direct costs down 1%: +£24,000
• Overheads down 1%: +£12,000
• Customers pay one day sooner: +£10,959 cash, one-off
• One day less stock: +£6,575 cash
• Pay suppliers one day later: +£6,575 cash

Together that's £92,000 more profit a year, an increase of 23%, and £24,110 of cash released. None of the moves is heroic. Most customers won't notice a 1% price rise. Most suppliers will agree a one-day change in terms.

Three things the table shows

1. Volume is the weakest profit lever. It's the one most owners reach for first, and it comes with extra work, extra stock and extra unpaid invoices.
2. Price is the strongest. At a 40% margin, 1% on price is worth two and a half times 1% on volume.
3. Cash levers are worth real money. A single day on debtors releases nearly £11,000 here. Ten days releases over £100,000, money that would otherwise have to be borrowed.

Why the levers matter more as you grow

The route you choose (organic, acquisitions, new products or marketing) decides where new revenue comes from. The seven levers decide whether that revenue turns into profit and cash. Grow on poor levers and you simply scale up the problem.

That's why we build this table from a client's own accounts before talking about growth plans. It turns a vague ambition into specific, priced decisions.

Do this next

Take last year's accounts and work out your own seven numbers. Then pick the two levers that are worth most to you and the easiest to move. That's where your next 90 days should go.