Is Your Business More Like a Lamborghini or a Lada?

A Lada may get you from point A to point B (if you are lucky), but a Lamborghini is a highly tuned engineering marvel! Not only will it get you from point A to point B, it will do it quickly, efficiently, and in style! It is a thing of beauty!

Just like a Lamborghini, a finely tuned, high performance business is a beautiful thing!

Understanding what to monitor in your business to ensure that it is finely tuned and highly performing is not an easy task. As you can imagine, there are as many opinions on the definition of high performance as there are businesses. And for good reason.

Every business is unique and, as such, should have its own definition of high performance. However, most businesses simply don’t invest any effort into defining what this looks like for them or what they should measure to gauge their performance

The internet doesn’t really make it any easier. A quick Google search on “key performance indicators” turns up over 27,000,000 results while the KPI Institute has over 21,000 independent performance measurement KPIs!

It can be a daunting task to decide what to measure and monitor!

That is why I choose to keep things simple by starting with the basics.

Five Basic Indicators

As a minimum, every business leader needs to monitor the five basic metrics shown in the screenshot below. I understand that there are many other metrics like; cash flow, employee turnover, DPO, DSO, etc., etc. We will discuss many of these and more in future posts.

For now, just build a simple report with these five metrics that you can generate on demand and review at least once a week. To make sure that we are all on the same page, here are my definitions of the terms shown in this table:

  1. Orders – These are contracts that have been signed but not yet started.
  2. Sales (Revenue) – These are the products or services that you have successfully shipped or completed.
  3. GP (Gross Profit) – This is the money left after you subtract the cost of producing your goods and services (COGs) from the Sales number.
  4. SG&A (Selling, General & Administrative) – These are all the costs associated with sales and administration of your business.
  5. OP (Operating Profit) – This is the profit left in your business after all the expenses are taken into account but before taxes are paid

These indicators can tell you many things about your organization. The seven items shown below identify only a small subset of what you can learn from these indicators.  For example, they will quickly show you:

  1. If your business systems are capable of accurately producing a simple weekly report.
  2. Your yearly and monthly financial targets.
  3. Where you are at against your targets for the month and for the year.
  4. Trends in your business that may be cyclical patterns. Cyclical patterns can be an opportunity to adjust your product or service offering and strengthen your overall business.
  5. When your costs to produce your sales are too high.
  6. When your selling and administration costs are out of alignment with the rest of your business.
  7. If your business is profitable at any one point in time and at the overall year to date.

Take Action

Go ahead and build this report for your business today. Secondly, block some time in your calendar for regular weekly reviews of your important business metrics. Make sure that you are taking the time to set up your goals and expectations for the year so that you can measure your progress against these goals. After all, if you don’t know where you are going, how will you know when you get there?!

Finally, take a look at these related posts for more information:

  1. How Do You Measure Success
  2. Why Destroy Your Business by Flying Blind
  3. How to Set, Monitor, and Reach Your Business Goals
  4. How Do Leaders Get Their Organizations from Vision to Action

 

Committing your goals to paper increases the likelihood of your achieving them by one-thousand percent!” Brian Tracy

 

What basic metrics does your business use that may provide value to other readers? Leave your comments below!

 


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