The Importance of Measurements

By Frank Newhard

As a local business coach, I talk to and work with the owners of numerous small- to medium-size businesses every week. One of the things that a large number of these owners have in common is the fact that they do not measure nearly enough areas. Every business needs to have key performance indicators that they review on a daily, weekly, and monthly basis, the frequency determined by the business they are in. These measurements will enable them to quickly understand the health of their business and point out key areas that need attention.

The high-level measurements are revenue, profit and bank balance. Several key areas affect top-line and bottom-line results.

For every business, generating enough leads is crucial. Therefore, it is important to develop a tactical marketing plan that will deliver enough leads. Measuring where the leads come from will enable you to determine which marketing activities are working and which ones need to be changed or eliminated. Without measurement, there is no way to know what is or is not working.

The next key is the conversion rate. How many of your leads turn into clients? Knowing this is very important. By training, using scripts and improving your processes, you will improve your conversion rate, thus driving more revenue to your company.

Another key area to measure is the average revenue/client. Many businesses have the ability to increase this number by suggesting other items or up-selling to another product or service. Measuring this will show you any differences among employees, as well as help you during the budgeting process as you plan your year. Often I find that providing an opportunity for employee sharing at monthly meetings can create a great learning opportunity, as well as a great way to recognize someone who is doing excellent work.

The next key metric is gross margin percentage. This shows how efficient you are at producing the product or service you sell. The higher the gross margin percentage the more efficient you are. Looking for ways to improve employee productivity, lowering costs of material, and improving operations are a few of the things that can affect this area. Another strategy that can greatly affect this is putting in place an employee incentive plan.

Last but not least are fixed costs, those costs that you pay each month whether you sell a thousand items or one item. Some examples are utilities, rent, insurance, fleet and phones. Any savings here is beneficial, because you get to save that amount every month. I find that this area is often overlooked.

Measuring these key areas and taking action to improve them can yield incredible bottom-line profit improvement. By improving the number of leads by 10 percent, your conversion rate by 10 percent, the average revenue/client by 10 percent and your gross margin by 10 percent, and by decreasing your fixed costs by 10 percent, you can increase your bottom-line net profit by 68 percent!

Obviously, there are many more ways to improve these areas and to improve your business. Without measuring, you have no way of knowing where to start. I hope this helps you get started on your way to improving your business.

© 2010, Frank Newhard

Frank Newhard

Business Coach / Independent Franchise Owner, AdviCoach

Office: 443-292-4180

Cell: 410-533-4905

fnewhard@advicoach.com

Frank is a local business coach with AdviCoach. He helps the owners of small- to medium-size businesses grow their profits and build teams to help run the business so they can get time back for themselves. Prior to joining AdviCoach, Frank had over 25 years of leadership experience with Digital Equipment Corporation and Compaq Computer Corporation. During his career he held positions in sales, service, operations and general management. As a VP and General Manager for seven years, he was directly responsible for over $800 million in revenue and 2,000 employees. He thoroughly enjoys all aspects of business and has a passion for helping others achieve their goals.

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