Five things you need to measure to be more profitable

Measuring tape
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David FullerA business guru once said, “What gets Measured Gets Managed!” and it’s true. For example, a few years back, I wanted to find out our conversion rate in our retail store. To do this, we simply kept a pad of paper with three columns with the Date, Time and Number of people who came in and went out without buying anything.

For three weeks, our staff noted every occurrence that they saw where someone went out of the store without a purchase. It turned out that because we are a destination store, our conversion rate was quite high. In other words, 95 per cent+ of people who came into the store left with a purchase. However, I observed that our staff was more interested in helping the customers as they entered the store. They greeted more customers and seemingly were more helpful. Customer service levels went up, as did our conversion rate!

It is a proven fact that, in small to large businesses worldwide, what gets measured gets managed. This is why many leaders track Key Performance Indicators or KPIs. I challenge you to try it for yourself and see. When you and your team start measuring key metrics, your team will begin focusing on the areas you deem important and trying to figure out how you can do better. Measure the waste, and you will waste less. Measure recycling efforts and you will recycle more! Measure your customer service and customer service improves.

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Here are five things you need to measure to be more profitable.

Net Profit – Seems like a no-brainer, but many small business owners I work with don’t get financial statements on a monthly basis and don’t look at the bottom line. If you have no idea if you are making money other than looking at your bank balance, you are mistaken. Bank balances are not profit. Getting and reading regular monthly statements will help you make more money because you are forced to look at whether you are making a profit each and every month and wondering if that profit is really enough for your efforts!!

Gross Margin– Again this comes from reading your financial statement. Comparing your gross margin from one month to the same time the previous year, you can tell whether or not you need to make some adjustments. We might automatically assume that we have a good gross margin if we are showing a profit. But comparing current gross margins with those from previous years will help you notice if it is going in the right direction: that can make thousands of dollars of difference for you.

Average Sale – What is your average sale per customer? How can you make it better? Comparing your average sale and noticing what drives it up, or down, can be significant to your bottom line.

Labour as a percentage of sales: Wonder where your money is going? Labour costs are one of the most expensive parts of any business. Having the right balance between your sales and labour can be the difference between the life and death of a retail business. Too low labour costs, and your customers don’t get served and leave. Too high, and you won’t make any money. Find out what others are making with similar operations and compare it to yours. Start comparing your hours to the year before, the month before, and the week before. I guarantee that you will make changes.

Out of Stock levels: I have visited some businesses and they look like they are having a going-out-of-business sale. Big empty gaps in the shelves where the product is out of stock. Customers notice out of stocks and are frustrated by them. To ensure your long-term viability, you must ensure that you have products in demand on your shelves. Measuring out of stocks will ensure that your staff gets those products on the shelves so as to keep the customers coming back!

While every business is slightly different, we can all find things we can measure that we would like to manage better. What three things do you need to start measuring to help your business succeed? I challenge you to engage your team and figure out what you can track, use it as an experiment and see what happens. I would love to hear your results.

Dave Fuller, MBA, is an award-winning business coach and a partner with Pivotleader Inc.

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