Archive for August, 2008

 

A Business Dashboard is as Essential as a Car Dashboard

Quick! Without taking your eyes off the running of your business, what metrics do YOU measure regularly to see if you are making your profitability targets? I’m talking about those calculations for your business that tell you current essential activity about where your profit levels are headed. Numbers that speak to you and not just reports that your accounting software prints out. What is your business dashboard? Like the dashboard on your car, you can develop simple dials for your business, a business dashboard, that tell you whether you are running efficiently or headed for major breakdown and repair. For example: low on gas (not enough sales activity), low on oil (running on a profit deficit that will eventually grind you to a halt), draining battery (not enough response from your market), or overheating (heavy activity that may need extra workforce). Put together as a simple business dashboard in excel, for example, and you’ll be able to quickly monitor your business progress.

Here are some business dashboard examples from my clients:

An Activity Measure. This is a simple count of actions easily collected. For example, make 10 appointments per week with new prospects or existing clients to review accounts and needs. Did you do it or not? Over time, of course, you learn whether 10 appointments achieve the bottom line profit you seek or needs to increase. Such an activity measure is unique to your business, methods, and products. Only experience produces this answer.

A Breakeven Measure. By adding up all the fixed monthly costs and averaging the variable costs over three to six months, you can determine your breakeven point. This is the amount of revenue (sales) you must bring in before you make your first dollar of profit each month. Knowing your breakeven point month to month focuses your actions on attaining profitability earlier in the month. Also it helps you attune yourself to seasonal variations so you can make adjustments.

A Response Measure. How many people have shown interest this week/month in your product or service? This could be a count of proposals made, verbal commitments, new inquiries, or even people asking for your business card. It is an indication of future activity and potential sales. Notice I did not say ‘new’ people. Including existing clients in this measure ensures that we continue to focus on repeat business from our already loyal followers.

A Sales Measure. What new sales dollars came in during the week/month? Was it enough to cover your breakeven and profit target? If you’ve set a sales target, did the sales reach that? Although this sounds easy to measure, it may not be self evident. Are you just measuring cash received, or dollars in signed contracts, purchase orders, letters of intent? Think about what items should be included, then remain consistent.

A Units Sold Measure. If you are a service business, you’re selling hours. You’re units sold are hours contracted. With product sales, your units sold are the number of items sold. When you have a limited number of similar cost items, this measure has more meaning than when you have dozens or hundreds of widely variant priced items.

An Average Selling Price (ASP) Measure. What is the ASP for your units sold? For your labor hours, this would be the weighted average of hours delivered at their actual billed rate. Example: You may have 16 hours delivered at $75/hr, 12 at $72.50, and 9 at $82, for an ASP of $76.89. Since some portion of your product might be sold at larger discount than other parts due to volume purchases, this measure is useful in tracking whether your profit margin is increasing overall.

A Slippage Measure. This is a measure of “lost product”. This would include hours that can’t be billed to a client but should have been. It includes product that won’t be sold due to quality issues or those given away in excess of planned sample allowance. An area of slippage for service businesses is excess hours on fixed bid contracts beyond the original estimated allowance.

A Profit Measure. How many dollars of profit were made? This is the number we’ve all been waiting for and the reason we’re in business. When the profit number is not what we seek, all the other measures are there to help us diagnose what we should be adjusting.

The measures that make up your unique business dashboard need not take huge amounts of time to compile. Generally they can be extracted from your accounting reports or collected by other simple consistent methods.

Your ability to create a business dashboard telling at a glance your direction, speed, and resources can immensely help you control your business. Not happy with your profits? A small change in the ASP or the activity measure can help boost your bottom line profits. Your business dashboard can help you see if you are hitting your targets for activity, slippage, ASP, units sold, breakeven, or whatever you need to measure. Your gages tell you what you’re looking for when you open up the hood and take out the wrench.

So, tell me what’s on your business dashboard?

For a free no-obligation chat on building a business dashboard you can’t live without, call Merra Lee Moffitt, profitability coach and CFP®. She spends all day, everyday guiding business owners reaching their financial dreams and goals by capturing small business profits. She can be reached at, 888-920-2030 or by email at merralee@captureprofits.com.

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