Business owners pay attention to their monthly, weekly, daily, and sometimes hourly income flow. Tracking earnings is an important measure, of course, but by itself isn’t a measure of success.
Here’s an example:
“It costs me $12 to make each of my widgets. I sell them for $10.”
“How do you make money?”
“By mass production.”
You can monitor your business’ actual profitability by recording metrics that enable you see the increases or decreases taking place and the factors that actually control your business’s revenue flow and profitability.
For example, depending on your products/services, you may determine a new way to increase your profitability by adjusting the cost-of-doing business associated with individual clients.
What I’ve Learned
One of the best lessons I’ve learned in this is by discovering that I can’t afford to do business with some clients. Most of the time this is due to the fact they are always behind on their payments. As a result, managing accounts receivable with them simply sucks up too many management resources. The harsh fact is that some companies have a toxic manner of doing business and intentionally will not pay their bills until they’ve stretched the process to near the breaking point. If you can measure profitability on each account, you will identify how such behavior actually affects your profit margins. In some cases, you will improve your bottom line by just cutting them loose.
Again, depending upon your business, if you have a sales team, another important set of metrics might be the effectiveness of each of them. Display their sales reports in a graph form and divide them into four groups: superstars, stars, high-performers, and low-performers.
It’s a proven fact that resources are much more effectively spent in encouraging high performing salespeople to boost their productivity than in helping low-performers to improve. Concentrate your efforts on helping the superstars to improve even more. Then provide incentives for the salespeople below that to move up to the next category and let the lowest performers go.
Maybe neither of these examples apply to your business. Look for ways of measuring whatever factors there are that either cost you money our cause you to lose out on opportunities. Then you can see what is happening at those levels where you can actually improve the effectiveness of your business.
What has been your experience with measuring success? Do you have any thoughts about the subject?
Let’s begin a conversation. (firstname.lastname@example.org).
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Michael Woodfield – strategist, entrepreneur, and Founder @DesignLoyal. I spend my days helping small business owners increase profits by implementing affordable marketing plans. I spend every other moment enjoying life with my beautiful wife Erin and together spending time with our family including my sons- Nathan who works with me, Byron, his wife Katie, and their two beautiful daughters Emilie and Adie who affectionately call us Popi and Noni.
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