5 Things You Need to Measure to Be More Profitable


One of the gurus of business once said that "What gets Measured Gets Managed!" and it's true. As an 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 3 columns that had the Date, Time and the Number of people that came in and went out without buying anything. 


For 3 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%+ of people that came into the store left with a purchase.  What I observed however was that our staff was more interested in helping the customers as they came into 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 KPI’s. I challenge you to try it for yourself and see.  When you and your team start measuring key metrics, your team will start focusing on these areas that you deem as 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.


Here are 5 Thing you need to Measure if you want to be more profitable:


Net Profit - Seems like a no brainer however 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 automatically might assume if we are showing a profit that we have a good gross margin but by comparing your GM with others and noticing if it is going in the right direction 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 what drives it down can

be significant to your bottom line.


Labor as a percentage of sales - Wonder where your money is going? Labor costs are

one of the most expensive parts of any business. Having the right balance between your sales and labor can be the difference between life and death of a retail business. Too low labor 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 looking at your hours and comparing them to the year before, the month before, the week before... I guarantee that you will make changes.


Out of Stock Levels: I have been into 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 need to ensure that you have products that are in demand on your shelves. Measuring out of stocks will ensure that your staff gets those products on the shelves so that you keep the customers coming back!


While every business is slightly different, we can all find things that we can measure that we would like to manage better. What are three things you need to start measuring that would 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 a Certified Professional Business Coach and author of the books “Profit Yourself Healthy” and Pivotal Performance. Dave is a partner in the firm Pivotleader. Email your results and comments to dave@pivotleader.com

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