Why turnover is for vanity and profit is for sanity

After 13 years in business Paul Woods now looks for one number – gross profit.

The managing director of North West-base courier service Proactive Despatch said it’s too easy to chase turnover at all cost.

Proactive Despatch handles around 1,500 orders a month and has seen its profits soar after switching to using outsourced drivers.

He explains: “Originally with my business, everything we did was outsourced. About three years ago I changed my business model to having all my own vehicles and all of my own PAYE business and it decimated my business in terms of profitability.

“It’s amazing how a global pandemic makes you look at your business with a different set of eyes.

“We’ve now switched our model again to using outsourced drivers who understand our values.

“Our business has gone from strength to strength and our revenue has grown by 25 per cent. Our profits have gone up.

“I’m at a junction with Proactive Despatch. I could have a really good lifestyle business; or do I take it to the next level?

“For the past 13 years  I’ve really only had to answer to myself, my wife and my customers. When we take on a NED we’ll have to answer to them as well.

“Revenue really is for vanity. The gross profit line is more important to me than the turnover line. Over the last 13 years we’ve chased some of the biggest contracts  and we’ve won them at small margins because that’s what they expect and anticipate.

“It really was the wrong approach. We now chase gross profit and how many pounds each transaction is worth.”

Could your business be built on sand?

Woods says because of the changes, the Widnes-based business is now primed for growth and plans to invest in better technology to improve the customer journey further still.

Experienced finance director and non-executive director David Bryne says the ‘turnover is for vanity and profit is for sanity’ argument might be obsolete.

“With the ARR multiples being paid in the tech sector I’m not entirely sure that old adage holds true,” he says.

Rob Jones, founder of RJF Business Services, is of the opinion: ”Don’t forget cash is reality.”