In last week’s blog, I shared with you the first three quantitative questions to help you prioritize which problems to solve. As promised, I am wrapping up our blog series with the fourth and fifth questions in problem prioritization.
4th Question: How much impact does solving this problem have on revenue?
The fourth and fifth questions are correlated. Sometimes, it is difficult for people to understand the difference between revenue and EBITDA. Many employees don’t know what EBITDA is.
There are situations when improving processes can only affect revenue. And there are times when they can only affect EBITDA. Or they can affect both. They’re not all the same.
Revenue is income earned. It’s your input to the organization financially. Whereas your outputs are profit and EBITDA, which stands for earnings before interest, taxes, depreciation, and amortization. It’s used as a metric to evaluate a company’s operating performance and can be seen as a loose proxy for cash flow from the entire company’s operations.
If you think of this as your pre-sales and post-sales operations, a lot of the activity you’re going to do to improve processes is going to drive revenue in your pre-sales operation.
5th Question: Does this impact EBITDA?
Once you close a deal, the improvements and processes you make aren’t really going to affect the revenue that much. But they might affect your costs and your EBITDA.
Then, sometimes, solving a problem can affect both revenue and EBITDA. For example, a company I’m working with has a sales cycle lead time of about nine months. If they have poor operations at the end of their sales process, it’s going to affect their EBITDA. This is because there are so many resources being put across the span of nine months to close the deal, and then they’re lost. It’s also going to negatively impact revenue.
What’s Next: Selecting problems to solve
As mentioned in the previous blog, each answer to the five quantitative questions is going to be rated from one to five. Five, being…