Is one bad month a trend? Compared to what? The month before? The same month a year ago?
Ask any manager “How’s business?” and you will likely get a response like, “Well, we are down for the year, but we just had a great month,” or “We’re having a great year, but next month looks really bad.” Why not use a week or a day? Our Wednesdays are way up this year… My issue with the use of months as a measurement is that for most of the AV Industry, one month isn’t relevant. The lead time for projects and events is often more than one month. Additionally, the success or failure of a month is often the result of a one day shift in revenue or expense. The exceptions are of course box sales and rentals.
Executives are more likely to respond the “How’s business?” questions with quarterly data and maybe tie it to the economy. “Q1 was down over last year, but we were down less than the stock market. If we can keep beating the market, we will have a good year.” Outside stakeholders will measure success in terms of expectations, which is what most stock market data is compared to, “We are way ahead of plan.” (When I hear this I always wonder if their planning is ever accurate.) Owners and C-level folks tend to look at years: “We expect to up/down x% this year.” Their bankers may be looking at months, but senior executives try to keep the big picture in perspective.
Different industries need different time measurements to be relevant. Separate companies within the same industry could use diverse time periods to gauge progress. Just because accountants and banks think in months and quarters doesn’t mean that is what is best for your situation. How much time, energy, and angst could you save if you weren’t compelled by convention to recognize revenue by a deadline based on reporting periods? Deadlines are important – don’t get me wrong. Have you ever rushed a job to finish or pressured a client to sign-off just to put the project into the current month? Maybe you have artificially inflated a traditionally slow month by closing a lot of open jobs (and then recognizing the profit)? Using the wrong period of measurement leads to games.
My point is that these arbitrary measurements don’t prove anything and often cause us to make poor business choices. If we think of period reporting as the current score in a very, very long game then think our overall attitudes about accounting might be a bit healthier.
What about a project or job as a measurement tool? This is another thing that can get me wound up. AV companies often apply job costs to an installation or live event to measure the gross profit on a job, but does that really tell you the whole story? It’s very likely that the firm executed multiple jobs over the same period and some were more profitable than others. One project will always get access to resources that the other didn’t. Commissioned sales people certainly understand this.
This leads to firms that take very low margin jobs in slow months. Companies apply a system of arbitrary measurement (months) to potentially undermine their business strategy. The best way for a customer to whittle the price down is drag out the negotiation into a traditionally slow period.
I can’t offer a definitive solution because every firm has to set its own priorities. What I do suggest is that managers pick one time period to measure success and stick to it. Stop punishing teams for a bad month when the quarter is meeting expectations. Don’t freak out over a low profit job when overall profit is up. Conversely, don’t over-celebrate a good month in a bad year. Understand the why’s and how’s of the circumstances and share that story.