Five ways to monitor business success

There are many accounting indicators to see how you are tracking, often ratios like net profit, gross profit, current ration, stock turn and debtor days. But there are so many new dashboard app’s, accounting software data, and a host of other information it’s often best to just focus on those that mean something to you.

Here are six important numbers we think that will give you a regular snapshot of how your business is doing, without needing to be an accountant graduate.

Number 1: The difference between what you buy something for and what you sell it for

Your overall margin is something that you should constantly measure in case it starts to slide without you realizing. Look to improve your gross margin by:

• Increasing your prices. Small enough not to cause too much disruption, but if it’s every product and service then the volume could be enough to show significant gain. You can also look at your range of products and services and increase those which are not price sensitive, or assess if you can increase your hourly rate.
• Buy cheaper, but without affecting quality. Research lower cost providers or ask for your current supplier and their competitors to pitch for your business.
• Conduct an exercise to spot any areas where there is excess waste, and then come up with ways to minimize. Buy only what you need. Recycle and reuse any waste materials you can, and make sure your employees are doing so as well. Put your greenest employee on the job as chief recycling expert.

Number 2: Your share of customer wallet  

This metric is about increasing the number of things customers buy from you. It can be products, hours, services, warranties, insurance; anything where a customer is encouraged to buy two things rather than one.

• Find out when someone is likely to buy again by using your sales data to identify trends such as seasonal fluctuations and items frequently bought together, helping you plan marketing promotions.
• Learning to up-sell and cross-sell. Make it easier for your staff to up-sell and cross-sell by bundling products and services together, creating packages and complementary items.
• Focus on your ‘gold’ customers –the ones who buy the most. Stay in contact with them as much as possible. Target those customers who you think have the most potential, then develop a specific plan for each of them.

Number 3: Find new ways to generate cash

Steady, predictable revenue growth is the sign of a healthy company that has the wheels turning well.

• Generate more sales by selling more to existing customers. Set up a call/contact campaign so that you can keep in touch with your existing customers.
• You can also look at developing new products or services for your existing customers. What else do they need?
• Create a marketing plan to identify, locate and sell to new customers. Look for new distribution channels to expand your customer base, such as third-party selling sites and your website.
• Exporting can be a great way to gain new customers and increase revenue. Even if it’s ‘exporting’ to another town or State.
• Franchising is a popular option, especially if demand for your product or service warrants it.

Number 4: Incentivize employees to sell more

Measure revenue per employee and help them to sell more. 

• Come up with a way of matching sales to each employee, then set goals. Help them put a sales plan in place, and then measure how successful it is.
• Ask your staff what they need to do the job right and keep them informed about business performance and management decisions, especially those that affect them.
• Give incentives to your employees regularly. It doesn’t always have to be cash (try a half day off).
• Make sure your sales data is transparent, so everyone knows who’s selling the most.

Number 5: Positive word of mouth

You need to work hard at convincing customers to recommend your business. Try and measure customer satisfaction by asking for opinions and feedback to solve dissatisfaction or encouraging referrals.

• Ask customers to write testimonials you can place online.
• Keep track of any customer complaints. Document who the customer was, what they were unhappy about, what was done to resolve it and if the customer went away satisfied. Fix what you need, to reduce the issue recurring.
• Survey your customers, talk to them directly, get their opinions.

Create an after sales process to ask each customer for a referral, if appropriate.

In summary

Establishing a few numbers that mean something to your business, like these five examples, as well as sales volume and net profit, will help improve your chance of success. Then set up a system so you can monitor what is happening to each every month.

If you can improve on each one by even small increments, you’ll see substantial improvements in profitability. It’s the multiplier effect that provides the value.