October 2009

I’m amazed the amount of information business owners and entrepreneurs DON’T have about their business.  Their passion is wrapped up in their business, and they don’t even know much about it.  Maybe it’s just “not their thing.”  It should be your thing.

The metrics, or key performance indicators (KPIs), of your business are integral to the operations of your enterprise, and need to be known on a timely and accurate basis.  And you can known them.  It takes process design, implementation, training and monitoring.  We can help you get there.

There are many different business metrics you could design and use, but here are 3 basic ones you can use to run your business:

1. Top Line Metric. The first is related to the top of your Profit and Loss Statement, or your Sales.  In this metric, we are going to track the cash coming in the door.  And you could do this in many different ways (even non-financial ways).  For example, you may want to measure how much of your product or service you’ve sold this year.  And you may want to compare it to the same time period in the prior year.  That’s trending, and it’s very useful to know where you are and potentially where you are going.  Here are some other top line metrics you may consider (there could be hundreds, so leave new ones in the comments above):

- the change in unit price of your product that you are charging, or service by hourly rate you are charging,

- gross sales by service type, not just in total (expand your reporting and track the many different ways cash comes in the door, not just the general “sales”),

- the seasonal aspects of your sales or particular products (i.e., figure out when you get your cash, then figure out why),

- track sales by salesperson, location or by doctor,

- which are your favorites?

2. Middle Metric. This is the area in the middle of your Profit and Loss Statement, otherwise known as expenses (duh).  Why is it a good thing to know your expenses?  Let me count the ways, a “dollar saved is a dollar earned,” you can know if your employees are stealing from you, you can learn where you overspend, you can actually learn where you underspend, you can know when your vendors are raising their prices (some business owners don’t actually know this), and many many more.  You need to be tracking expenses with middle metrics.  With your middle metrics, you want to track things like how much your product cost to create or deliver, including materials, labor involved in getting it to your customers, spoilage, repairs, etc.

And you want to trend your middle metrics over time.  That is, knowing what your advertising cost you in October 2009 is much more valuable if you know what advertising cost you the past 12 months as well.  Compare them all and look for trends.  And you always want to track these costs as a percentage of total sales too.  This tells you if your costs are in line with what you expect.  QuickBooks, and probably every other accounting package out there, will give you these percentages.  Here are some middle metrics to chew on:

- total cost of goods sold, as a % of total sales,

- owner payroll costs compared to total payroll costs,

- total advertising spend per customer for x time period (total advertising costs for x time period, divided by total # of customers served in the same period),

- average # of hours spent on each patient, broken down by type of procedure performed,

- what floats your boat?

3. Bottom Line Metric. The bottom line metric deals with our favorite metric – cash left over at the end of the day.  But I’m also talking about the profitability of the jobs you perform, profitability by type of work performed (different than a job), and productivity as related to time (is your time profitable?).  Let’s talk about time for a minute.  Time is a big metric most of my clients don’t track because it doesn’t enter into the invoice they send their clients monthly.  However, NOT knowing your productivity means you don’t know the value of the product or service you are performing.  And if you don’t know that, then you can’t really know how to bill your customer.  Tracking time is big to me – and it can start simply by keeping a manual time sheet of all of your activities for every hour of every day in a work week.  You don’t have to go crazy – summarize and estimate if you have to at first.  But start the process of KNOWING the profitability of your time.

Other bottom line metrics may include:

- profitability by location,

- profitability by salesperson,

- profit per hour,

- any others?

I hope these help you create metrics in your business… and if you are still stumped, let our firm walk you through the steps to creating a process that tracks this stuff automatically!

Here’s to your success,

Jason M. Blumer

Tweet This (and such)

Hide Sites