The costs associated with running business management and computer systems are relative newcomers to our Profit and Loss statements. Thirty years ago, most flooring businesses would not have had a computer in the business, much less an expense line for technology. That situation has changed dramatically. What does IT cost you?
There are two ways to look at the question; What is the sum of all your IT expenses annually? What does insufficient or inadequate IT cost your business?
The first is easy to answer, a quick look at your financials will give you the number, and then if you divide that number by your revenue, you will have the percentage of revenue you spend on IT. As a comparison, a Deloitte survey from 2017 shows the average business spend on IT is 3.28%, ranging from 7.16% for banks, down to 1.51% for construction. Retail shows up at 2.04%. To put this into perspective, if you are running a $3m flooring business, a spend of 2% is $60,000 annually. I would hasten to add this is not a recommendation; it would be very difficult for a flooring retailer to justify that level of annual expenditure on IT.
In my experience, the average $3m flooring business is likely spending between $3,000 and $20,000 on IT annually; 0.1% of revenue at the lower end up to .8% at the upper end. These numbers will spike from time to time when hardware is purchased or updated, or when an investment is made in new software.
The reality is our industry doesn’t spend significantly on IT. In some cases, because the need is not recognised, and, more generally, because the flooring industry is not driven by the need for data on a day to day basis. Flooring is not an IT-intensive industry. None of which is to say most flooring businesses would not benefit from improved IT. So, what might be the indicators that we are not investing sufficiently in IT, or perhaps that we don’t have the right IT for our business? In other words, do we have an IT cost that doesn’t appear on our P & L? These are some of the things you might look out for:
- Double-handling and triple-handling paper, frequently re-keying the same data
- Errors and oversights frequently arising because of double-handling
- Processes being overlooked, creating performance issues
- Staff frustrated by process
- Heavy reliance on paper-based information, with corresponding difficulty in finding information when needed
- Very little automation of processes
- Black spots in our business into which we have little or no visibility; sales pipeline, conversion rates, supplier claims, retentions, individual staff performance, and more
- Current systems hampering growth and preventing innovation
- Financial performance information inaccessible for quick and timely insights into business performance
From this list, you might recognise the need to improve your IT but are reluctant to incur the upfront cost, along with any ongoing costs associated with modern software solutions. It’s not an unreasonable concern; we should invest nothing in our business that does not give us a return.
RFMS is a fully integrated solution designed for a flooring business. They can show you how RFMS will streamline your business and increase profitability.
Story by Chris Ogden (Consultant and Director of RFMS Australasia)