What are the Top 4 measures that drive most of your business improvement?

Posted on 09 Nov 2022

In our recent webinar, the 7 ways to grow your business, we mentioned a few KPIs that you should be monitoring in order to get your business to the destination you want.

If you know what you want to achieve, it’s time to set the wheels in motion and set up your dashboard.

The dashboard on your car shows you how fast you’re going, how much fuel you have left and the temperature of your engine.  It gives you an indication about whether you’ll make it to your destination.  It’s the same in business.

The things on your business’s dashboard are Key Performance Indicators, or KPIs.  Essentially, they’re measures which tell you if you’re on track to achieving your plan.

Your dashboard should show the top four or five measures which drive most of your business improvement.  Focusing on a small number of KPIs allows you to capture, monitor, report and improve them on a regular basis.  Your most important KPIs will depend on the type of business you have, as well as your goals.

For example, a manufacturer’s most important KPIs might be:

 -  Gross profit percentage:

This metric shows the amount of profit made BEFORE you deduct things like overheads and the cost of goods sold (COGS), shown as a percentage. The formula for calculating your gross profit margin looks like this:

Gross Profit Margin = Gross Revenue minus COGS, divided by Net Revenue, multiplied by 100

• Deduct your COGS value from your gross revenue to find your gross profit.
• Divide this gross profit by your revenue.
• Multiply the resulting number by 100 to get a percentage.
• This is your gross profit margin as a percentage of gross profit
• A percentage of 50% to 70% is healthy, but aim for a big a margin as possible

 -  Cost of rework:

For example, you could aim for Gross margin by product >50%

Number of jobs completed within budget >80%

 -  Work in progress days

 -  Debtor days:

Your debtor days number is a metric that shows the average number of days it takes your customers to pay you. Anything above 45 days is bad news, so you want to aim to keep this number between 14 to 30 days, if possible.

A retailer’s KPIs might be:

• Sales:

An obvious metric to track but you’ll need to set a target first. It’s also important to log and track the drivers that lead to these sales. How many sales enquiries are you receiving? How many of these enquiries are being converted into actual sales? How many customers are being engaged by your marketing campaigns and is this engagement leading to interest in your products and/or services.

Gross profit percentage

• Average client spend
• Transaction frequency

It’s important you determine which KPIs you should be measuring, set goals for improvement, and establish a dashboard to regularly monitor how you’re progressing. Your team need to be on board as well and they need to know and understand their specific KPIs.

Tip: focus on a small number of KPIs on a regular basis.  Choose 3-5 key drivers that you know are going to help your business.  They don’t need to be complex, and any time is the right time to start working on this.

If you allocate a little time each week, this time investment will make a big different to both your business and your personal life.

We can help you set up your KPIs to help you measure your performance.  Get in touch with one of our advisors today.