One of the gurus of business once said that "what gets measured gets managed" and it's true.
As an example, I wanted to find out our conversion rate in our store at Ave Maria. To do this we simply kept a pad of paper with three columns: date, time and the number of people that came in and went out without buying anything. If they were part of a couple we didn't count the husband if the wife bought, but we counted everything else.
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 that came into the store left with a purchase. What I noticed, however, was that our staff was more interested in helping the customers as they came into the store. They noticed more customers and greeted them better as it was their job to notice what was going on. Customer service levels went up, perhaps our conversion rate went up as well.
It is a proven fact that in small to large businesses worldwide, what gets measured gets managed. This is why big companies and small are moving towards having dashboards of their key performance indicators. I challenge you to try it for yourself and see. If you start measuring things you start focusing on them 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.
Here are five things 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.
Labour as a percentage of sales: Wonder where your money is going? Labour costs are one of the most expensive parts of any business. By having the right balance between your sales and labour can be the difference between 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 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 stores and they look like they are having a going out of business sale. Big empty gaps in the shelves where 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.
Dave Fuller, MBA, is a certified professional business coach. Call him if you would like a free coaching session to tune up your business or would like to join one of his group coaching courses. 250-617-7467 or email at [email protected]
