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rdv business solutions services

Financial Management

What You Can Measure, You Can Manage – and Multiply

One of the areas most overlooked in business is the measurement of some key numbers.  We call these Key Performance Indicators because they tell us what is happening and alert us to areas of problem or potential.
Interestingly, with just a little improvement in some, you get to set your sales and profits soaring.
Ask any owner of a really successful business and they’ll tell you that they know exactly what it takes to achieve their results.  They know the actual targets they’re aiming at, whether they’re going to hit them and what to do if it seems that they’re not.
They measure these KPI’s on a daily, weekly and monthly basis.  Key Performance Indicators are the gauges, if you like, for your business.  Just like a car has indicators (fuel gauge, oil gauge, tachometer) to tell you how it’s running, so your business has indicators too that do the same thing.
Let’s stick with the car analogy for a moment.  You set off on a trip from Sydney to Brisbane.  Before you go, you check to make sure that you have fuel, oil, good tyres, brakes, etc.  Then off you go.  Along the way your fuel indicator will show that you need to top up, your brake light might tell you have to replace pads or your oil light tells you to top up the oil.  If you don’t take any notice of the indicators your car will eventually malfunction or stop completely.  Of course, you can get out and push but, if you fix the things that have gone wrong you won’t have to - it will run quite well on its own, getting you happily and safely to your destination.
Similarly, your business has the same indicators.  If you don’t take notice of them, like your car, your business will also grind to a halt.  Like with the car, you can ignore the indicators and just work harder pushing but isn’t it easier to “refuel” as you go?
So what are the indicators for your business and how should you measure them?  Let’s start with the obvious.
You should measure the following:-

Sales - by product, by salesperson, by day, by week, by month

Sales by product will tell you which products sell best and which worst.  If you’re putting all of your effort into products that are the hardest to move perhaps you need to rethink your sales strategy. 
Sales by salesperson will tell you how your sales team are performing.   It may highlight problem territories, training deficiencies or just perhaps problem sales people. 
Sales by day, week and month will tell you the peaks and troughs in your business and help you to plan your marketing efforts to fill these.

Conversion Rate

This is the number of sales calls, visits or customers you need to see to make one sale. 
Measure the conversion rate by sales person and see who is getting the highest conversion rates.  Then try to study what they do.  Why do they convert sales at a higher rate?  Do they have a better selling script?  Do they counter objections better?  Are they more consistent?  Friendlier?  Study the system they use and then discuss it with your sales team.  Consistently try to improve your conversion rate by finding a sales system that works - and stick to it until you find something better!

Number of Customers

How many customers do you have? Consistently measure how many customers your business serves by day, week and month.  This will tell you your slow days or periods and indicate when you should be marketing hard. 

Average Dollar Sale

It’s critical that you measure how much (on average) your customers spend with you.  Remember to measure this by customer (not by sale) as some customers may buy from you more than once in a day, week or month depending on your business. 

Number of Times a Customer Buys from you

If you keep accounts, this one should be easy.  If not, develop a mechanism for measuring this.

Marketing

You should know exactly how many customers respond to any marketing effort and how much they buy as a result

Financial Results

Without doubt, this area is one that is most often overlooked by businesses.  It’s crucial that you’re on top of your financial performance.  If you’re having trouble, ask your Accountant to do these numbers for you on a monthly basis.  You shouldn’t let a month go by without knowing:
Your Debtor payment ratio
Your Gross Margins - What are your margins on each product and overall? 
The Pareto Principle! – 80/20’s – what 20% of activity, product or people give you 80% of your results.
Stockturn and Stock Levels
Cashflow - Cashflow is simply money in and money out.  You should have a cashflow forecast prepared at least three preferably twelve months in advance - and it should be updated regularly (no less than monthly).
Performance to Budget
Comparatives and benchmarks for your Industry.  - KPI’s of your industry group are available from your Accountant  They will give you valuable insight into the measurements you should be taking and what results you should be getting to compete in your marketplace.

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