Top 10 Metrics for Business Success

By Philip E. Humbert, PhD
© Copyright 2003, All Rights Reserved

Every airline pilot constantly monitors instruments to assess their current position, direction, speed, and estimated time of arrival. This is considered fundamental and the nice thing about airplanes is that if the Captain fails to monitor these things, disaster strikes. The motivation to watch the instruments is clear:  monitor or die.

Unfortunately, in business, the same motivation is usually lacking. Most entrepreneurs do not monitor the "instruments" of their business at all, and even highly skilled business leaders often admit to monitoring them badly. We get distracted. We have work to do, customers to serve, a thousand-and-one details to track, and monitoring our "instruments" falls by the wayside. In the long run, however, the results are much the same as with airplanes:  eventually the business ends up crashing.

Here are the Top 10 Metrics that I believe every small business owner should monitor constantly, and take time to chart, review and carefully examine at least once a month:

1.  Sales.  Well, like, duh!  Are your sales increasing, decreasing, or flat? Do your top-line sales figures vary with seasonal factors, advertising campaigns, price changes or other activities? Put this number on a chart, a BIG chart, and keep it where everyone can see it, every day.

2.  Profit and Loss.  At the end of the month, how much do you get to keep? Are you on track? Are profits increasing, decreasing, or flat? Do profits vary as a percentage of sales? Traditionally called a “P&L”, a monthly chart of your profits is essential.

3.  Hours worked.  How many hours of labor did you invest this month? Labor is likely to be your most important and most expensive raw input. Monitor it closely.

4.  Productivity ratios.  How much did you make per hour of labor? Divide both sales and profits by the hours worked to see what each hour is producing in terms of revenue and profits. Know how much you're being paid for each hour of your own work, and each hour your employees work.

5.  Fixed costs.  Even service professionals have fixed over-head in terms of office rent, supplies, phone and utility bills. How much does it cost you to stay in business each month? What's your minimum "nut" each month?

6.  Variable costs.  These include the "Cost of Goods Sold" and other items that increase with each sale, such as the cost of raw materials, labor, shipping and other expenses directly connected to producing and delivering your goods or services.

7.  Gross margins.  How much are you making on each sale? What's your "mark up" or gross operating margin per sale? Is it increasing? How does it fluctuate with sales? Are you as efficient as your competition? Are you more efficient than last month?

8.  Sales Records.  How many individual sales did you make this month? How much is the average sale? How much do your best customers buy, and how does that compare to the average customer? Who are your best customers? Can you find more of them?

9.  First-time customers.  How many new people walked in the door or bought from you this month? Where did they come from?

10.  Cost of each new customer or client.  How much does each new client cost you? Are you reaching the right customer demographics? This tells you whether your marketing and advertising investments are paying for themselves.
 

Other items you may want to track: 

Life-time value of a customer. One customer who returns over and over again may be worth a fortune and marketing to that customer is critical. Other customers buy once and are gone. Know the difference and tailor your marketing budget accordingly.

Cash on hand.  Particularly if your business is seasonal or if you have periodic major expenses for inventory, marketing or other items, monitor cash flow closely.

Inventory can represent a huge factor in your success or failure because stale or inactive inventory represents dollars that are unavailable for other uses.

Replacement costs for tools, equipment or your own skills. Some businesses require periodic up-grades in computers or other equipment, or major investments in your personal skills (physicians, etc). Track and budget these items.

Reserves for future investment, including periodic tax payments. Most businesses need a reserve for new plant and equipment, and you may need a place to put money for those quarterly tax payments, insurance premiums, year-end bonuses, property tax assessments, and so forth. If appropriate, monitor these accounts monthly.

Phil

___________________________________
Philip E. Humbert, PhD
"Helping You Have Your BEST Year Ever!"
Email:  Coach@philiphumbert.com
Web:  http://www.philiphumbert.co 
 

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