You can only manage what you measure

Often attributed to statistician W. Edwards Deming, the phrase ‘you can’t manage what you can’t measure’ has become a popular one in business. The more data you have, the better decisions you can make – and that applies to businesses and organisations of all shapes and sizes.

So what do you currently measure – and are you measuring the right things? Understanding what’s most useful to your business will help you to form your ongoing business strategy and plan for the future.

Only measuring turnover?

Often, businesses focus on turnover – it’s a great indicator of sales progress and it’s usually a nice high number. However, if you don’t look at the more important details, you could actually be running your business very inefficiently – something you might not notice until your bank or loan provider asks for the figures.

Stay ahead of the game – make it part of your monthly reporting to look at project level profit margins, and project level cashflow. Getting to this type of granular detail can help you to see exactly how much your business is actually making, and where there might be things you can improve – or even stop doing – that would help to increase efficiency and make you more money in the long term.

Be project specific – if you offer a range of products or services, make sure you look at them individually to see which make you money and which don’t. Of course, depending on your business, you might have some product or service lines that are designed to be ‘loss leaders’ – helping to interest potential clients in your business and give you the opportunity to upsell or cross sell to a more profitable line. Knowing what these are – and whether they are working – is all part of a well-measured business plan.

Consider new projects – what are the cashflow implications of developing and launching a new product? Or moving into a completely new service niche? Start-up costs for new income streams can be considerable, and will impact the cashflow across the rest of the business – remember that the bigger the project, the more careful you need to be.

What else could you measure?

In addition to more standard financial measures, there are some other great things that are worth measuring. That’s because they bring other benefits to your business, and they help you to understand what’s going on inside and outside your business so that you can adjust accordingly. In many cases, they are also things that matter to your customers and investors:

• Average turnover per customer
• Average cost per sale
• Profit margins for each product or services line
• Customer satisfaction
• Sustainability commitments
• Team wellbeing
• Carbon footprint

To find out more about how you can improve measurement in your business to manage things better – and make more money – contact us today.

Please note: This is not meant to constitute professional advice. It is generic guidance only and things may have changed since it was written –please always seek specific & tailored advice for your circumstances.