Peter Drucker once said “what gets measured gets managed,” and it continues to remain true — regardless of advances in technology, and the multiplicity of tools we now have.
You see, accurate measurements provide feedback and it’s (only) with this information that you can make informed calls.
Think about your own personal goals (assuming you have them!). Perhaps last year you wanted to lose 20 pounds — so what would you do? One option would have been to get on the scales this week last February (back in 2014), and then to simply compare your weight at that time to your weight this week, one year later. I doubt you’d have had much success.
Instead you’d take regular measurements of your weight between the start and end date and make informed adjustments to your diet and exercise regimen according to what the measurements told you. You’d manage the process.
Let’s take a look together at what that can look like…
“Get a good idea and stay with it. Do it, and work at it until it’s done right.” -Walt Disney
As we think about what it would look like for us to manage our bodies, there are all kinds of connections to other areas of our lives.
You see where I’m going here: It’s exactly the same for your business. If you measure your key metrics you can manage their performance. Each and every business has key performance indicators (KPI’s), some of which are common to other businesses, some which are industry-specific, and perhaps some which the company created for itself.
These sorts of things are our bread and butter, when working with local small businesses. A sampling of financial metrics…
* Average transaction value.
* Gross profit margin.
* A measurement of a company’s efficiency during the production process.
* How much is left over after COGS.
* Gross Profit divided by Total Revenue.
* Net profit percentage.
* The amount of profit for every $1 of revenue generated.
* Net Profit divided by Total Revenue multiplied by 100.
* Debtor days or receivable turn days.
* How long your customers take to pay you. (The sooner your customers pay, the sooner you can get that cash working for you.)
* 365 (days in the year) divided by (Sales on credit or invoice divided by Average Accounts Receivable).
More industry-specific KPI’s might include:
* Table turns per night.
The number of times a restaurant is able to sit customers at a table.
The number of hours a machine in the production line can run.
* Rejection rate.
The number of defects rejected in an assembly line.
Non-specific KPIs might include:
* Customers won/lost.
* Customer complaints/product returns.
* Staff sick days.
You must absolutely integrate the RIGHT measurements to provide proper feedback on your business’ performance.
I hope this gets your juices flowing. Many of these financial indicators are things that WE can help you to implement … if you let us!