In today’s article in our blog series on Consulting Skills, we will introduce you to the third level, the Business Acumen. It’s about how to sharpen your own business sense in order to align your business for long-term success.
3. Business Acumen
In order to be successful as a consultant, you need a sharp business sense, also called Business Acumen, which examines all relevant aspects of the mechanisms of the business model (profit and loss statement). Through critical reflection, it is possible to evaluate how the business model works and which screws / mechanisms can increase sales, reduce costs and increase profits.
What do we mean by Business Acumen?
As consultants, we understand the ability to take each business model apart, question it and find areas for optimisation. This sounds relatively complicated, but it is not.
Let’s take the practical example – your girlfriend is the proud owner of a café and wants to increase her profit to sell the café in 10 years and settle down in Provence. In such a case you have to calculate how she can increase her profit. This starts with:
1. Definition of the market – how big is your maximum capacity of turnover at the moment and how can it be increased?
a) Define parameters: Try to determine the parameters that define the market. In this case: what is the maximum capacity (number of tables), how many times a day someone eats (number of meals) and through which channels can be ordered / sold (direct visit vs. online)? In this case you write down the following parameters:
b) Define assumptions: Define assumptions for each parameter and if you are talking to your girlfriend, make these assumptions together. Example:
I. Number of tables: 10 tables x 3 people (maximum)
II. Average length of stay (seat occupancy): 30 minutes
III. Number of meals per day: Lunch only max. 3 shifts
IV. Online orders per day: approx. 30
c) Calculate the market: With the assumptions made, you can now calculate the market (capacity). This means no turnover yet – the turnover is calculated with the average shopping cart.
Based on the current market, you can consider which measures can be used to expand the market. For example by adding more tables, a terrace, etc.
2. Average shopping basket: In the next step you check the average shopping basket value. This means what a guest eats or drinks on average. A simple glance at the menu is enough to evaluate the price level. If you multiply the maximum number of orders per day by the shopping basket value, you have the maximum turnover. However, this does not mean that this turnover is achieved accordingly.
3. Frequency: Now you evaluate the frequency – how often does a customer need / want to have lunch. How loyal are the customers (existing customers vs. new customers). In the example of the café this is a simple calculation: You can say that the opening hours correspond to the frequency.
ESTIMATION OF COSTS:
4. Marketing & distribution costs: Now you estimate how much has to be invested to make customers aware of the café and want to visit it. Normally, marketing / sales costs should not exceed 20% of turnover.
5. Production costs: Now you should think about how much it costs to produce a lunch on average. Here you can add up the cost of procurement (purchase and rent) and the cost of production (wages of staff who cook and serve). With the size of the market / capacity you can now calculate the production costs
CALCULATION OF THE GROSS MARGIN:
6. Gross margin 1: Now you can calculate the turnover (market x shopping cart value x frequency) minus costs (marketing costs and production costs).
Why is Business Acumen important for a consultant?
For your friend who owns a café it would be useful to make a simple assessment. Let’s assume that for her a gross margin 1 of 100k€ would result, then after taxes this would be about 70k€. The question would be, if in 10 years 700k€ turnover would be enough for her.
Every consultant is therefore expected to show potential ways of increasing the contribution margin. Important set screws are here:
- Market: Increasing sales channels or capacity
- Shopping cart: Increase prices or cross sales offer
- Frequency: Introduction of loyalty programs or increase in accessibility
- Reducing marketing costs: Improving the marketing mix and reducing wastage (addressing target groups appropriately)
- Reduce manufacturing costs: increase purchasing potential automate processes, optimise wages
The quintessence is about the improvement / increase of profit. In the longer term, of course, one must also ask oneself the question, does a “The winner gets all” principle make how a few large Unicorns from Silicon Valley are really target-oriented for our society, or not. But an improvement in profit is also an improvement for our society and tax revenue 😉
How can Business Acumen be trained?
To take your own business sense to the next level, you not only need to understand it yourself, but also to practice it continuously. You will find out how to do this below:
A: Develop your own Business Acumen Canvas (an example of ours)
B: Define your services among the improvements of the business model
C: Develop your own business sense for training and practice
A: Business Acumen with Hypothesis
- Weekly Business Acumen sessions (30 minutes), in which you present a new case each time
- Everyone will work on the case individually
- The group will work on the case together
B: Business Acumen with real customers
- All account managers will implement the business model with the customers
- Missing information is requested at the next customer meeting
If you want to get to know more about us or about what we do and what we offer or if you have any questions on this topic or on our insights, please don’t hesitate to contact us at any time.
Furthermore, you can watch the video from our Community Call here: Video of the call. Moreover we have provided the slides of the call for you here.
Next week we will continue with the fourth part of the Consulting Skills: Meta Thinking & Structuring
Your Amaze Growth / Accelerate Coach Team