Top 10 Metrics for Business Success
E. Humbert, PhD
© Copyright 2003, All Rights Reserved
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.
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:
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
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.
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.
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?
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
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?
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
customers. How many new
people walked in the door or bought from you this month? Where did they
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
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
represent a huge factor in your success or failure because stale or
inactive inventory represents dollars that are unavailable for other
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.
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.
Philip E. Humbert, PhD
"Helping You Have Your BEST Year Ever!"
(c) Copyright, 2003 by The
Philip E. Humbert Group, Inc
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