Seven lakh of contribution did not make our pilot profitable

## Put my preferred number back in the whole account

I liked the seven-lakh figure. Our replacement-planning pilot had earned forty-six lakh rupees in fees and spent thirty-nine lakh on direct delivery. I had supported the idea of a continuing service beside our industrial meshes, and the difference suggested that customers might pay for work we had previously treated as part of the surrounding commercial relationship. Six of eight customers renewed. It was tempting to put those two observations together and describe a promising new recurring business. The missing part was the cost of setting it up.

Setup had cost seventy-one lakh rupees. Total programme expense on the account we were using was therefore one crore ten lakh, against forty-six lakh in fees. The overall deficit was sixty-four lakh. Reema, our CFO, asked why the summary being repeated did not carry that figure with the direct contribution. The expenditure had not been hidden in the underlying records. It had been omitted from the shorthand through which people were beginning to understand the result. As the sponsor, I needed to correct that account rather than leave finance to appear opposed to the idea.

The direct contribution was still useful. It told us something about the defined delivery work and fees in the pilot. The setup expenditure answered another question: what the company had committed to establish the proposition. Neither account should replace the other. I did not want the business to dismiss the service merely because a small experiment carried establishment costs, but I also could not say the programme had paid for itself. The arithmetic was simple once the scope was stated. The harder part was accepting the less convenient description of a proposal I wanted to succeed.

These figures are not offered as a statutory profit measure. Finance owns the reporting definitions, treatment and wider company account. My responsibility was to keep the investment conversation faithful to the expenses and fees included in the pilot explanation. Calling the programme profitable would have carried a conclusion beyond that evidence. Calling the positive direct contribution meaningless would have discarded useful information. A strategy discussion needs room for the more exact statement: the pilot showed demand and a positive delivery contribution while remaining in deficit after its setup expense.

## Ask what another renewal requires

The commercial team's argument for expansion was strong enough to deserve a full hearing. Six renewals suggested that the work mattered to customers, and a larger base might spread some establishment effort. A limited pilot cannot demonstrate every economy that a mature service could achieve. The team worried that caution would slow learning and allow another supplier to occupy the relationship. I understood those concerns. The question was whether we knew enough about the work owed after renewal to make a rapid rollout the right next commitment.

Our service concerned replacement planning. It did not promise uninterrupted equipment operation or give a commercial team authority to decide when an application required a new mesh. Qualified technical owners retained condition and suitability decisions. That boundary was essential to the economics. A service described loosely as managing replacement could be interpreted much more broadly than the actual planning work. Before expanding, I wanted the organisation to know what it was accepting, which capability delivered it and which customer expectation would need a different technical or operating arrangement.

Renewal is evidence that a customer chooses another period of the offer. It is not proof that the provider can fulfil the obligation profitably at any scale. The next period still needs people, records, coordination and an appropriate route for questions outside the planning remit. Some setup work may not recur in the same form. Other work may expand with the customer base or become more complex as the mix changes. Those distinctions need examination. They should not be supplied by the attractive sound of recurring revenue or by a simple assumption that a larger denominator will solve the account.

The two customers who declined renewal also belonged in the story. Their decision did not invalidate the six who continued, but it made the result more informative than a universal-success account. We needed to understand their actual reasons without inventing a general explanation from a group of two. Perhaps the offer did not fit their circumstances; perhaps another arrangement suited them better. The useful next work was to examine the evidence we could obtain responsibly. It was not to remove the declined renewals from the presentation because they complicated an otherwise encouraging ratio.

I recommended limited continuation. That meant accepting slower pursuit of fees and preserving an economic question that a larger announcement might have disguised. The CEO approved the scope. The decision did not convert the setup cost into a saving or recover the existing deficit. It allowed the company to continue learning without using early demand as permission for every proposed expansion. A bounded continuation should have its own purpose, resources and review, rather than become an indefinite way of postponing the question of whether the business model can stand on its intended economics.

## Continue the experiment without declaring victory

The experience reminded me why an operator's background can help a strategy function. I had run a replacement division and knew that a customer relationship brings work after the invoice. Yet I was still drawn towards a favourable number when the proposition was one I had sponsored. Experience does not remove that preference. It should make me more willing to recognise it when a colleague challenges the account. The useful habit is to bring the complete decision back into view before the preferred shorthand becomes the story everyone expects to defend.

For the next pilot, I would agree the presentation of setup, delivery and fees before launch. I would also describe the obligation that a renewal extends, including the work outside our service boundary. That does not eliminate uncertainty. It gives the later discussion a more stable foundation when the result is mixed. A team should know that evidence of demand can be welcomed while an investment question remains open. Otherwise, it may feel compelled either to declare success prematurely or to treat every qualification as a verdict that the original idea was mistaken.

At board level, I would ask which account management is using to support its next recommendation. Directors should see what has been spent, what has been earned, which costs are included and what additional capability the proposed scope requires. They should also hear the commercial argument for moving faster. The board's task is not to reconstruct each service assignment or direct the pilot team. It is to understand the undertaking before approving a larger commitment and to know what evidence would cause management to change the recommendation.

I remain interested in a planning service beside our product business. The pilot did not settle that future either way. It made the next decision more precise: there was customer interest, a bounded delivery contribution and a programme deficit that still needed an honest account. Those can coexist. I would rather build from that combination than from a claim of profitability that the figures did not support. Recurring revenue becomes a useful strategic direction when the company understands the responsibility it is renewing, including the work and expense that remain after an attractive first sentence.