Seven Key Metrics That Determine Business Profit
by Ben M. Bartlett
Over the last couple of years the concept of the business dashboard has become quite trendy. In fact, a dashboard is something that many consultants tout as being the holy grail to business success
As you may know, a business dashboard is a metaphorical term for a business monitor for your key performance indicators, or KPIs. And in business you can have all types of dashboards including finance dashboards,operations dashboards, hr dashboards…yada, yada, yada. So many dashboards if you ask me. Where the hell am I going to put the steering wheel?
The reality? You don't need so many dashboards in your business. And neither do you need to monitor and measure so many KPIs. So let's cut the crap and get down to essentials.
In your business there are 7 crucial metrics or performance indicators you need to zealously monitor and manage. Not 17 or 117. And you won't need a car load of dashboards to measure and monitor them either.
Focus primarily on these 7 metrics and you will be better able to improve the real drivers of profit in your business.
To help you out I'd like you to share with you my Strategy and Marketing Funnel, which outlines these metrics in visual form. After that I will then share the seven most important objectives you need to set in your business. First off, here's the funnel:
At the bottom of the funnel you can see the word "PROFIT." Naturally this is the goal for any success-oriented business owner. But, to get that profit there are specific things you need to do in your business. And, you need to do them in the right sequence. So where does profit actually start?
As the funnel suggests, business success starts when you have a reasonable amount of targeted and effective brand awareness. I call it the principle of visibility. Bottom line is that to get any profit whatsoever you first need to have some quality brand awareness. You need to be visible to your target market. And the messages you send must define you as the best choice for the markets you serve.
On the other hand, if your business (and product) is invisible to your target market or, the target market doesn't understand your business or product, or your positioning and message is no good….you may as well close shop right there and then.
Next, you need to be able to turn that brand awareness into sales leads, foot traffic (if you're a retailer for example) or opt-ins. Essentially, metric 2 measures how well your brand awareness converts into interested prospects.
Metric 3 measures how well you convert your leads, opt-ins etc into actual sales revenue. This is your sales conversion rate.
If the vast majority of customers only buy from you once, you're a mug. And metric 4 should help you to understand that a frequent purchaser is far more valuable than a one-time purchaser.
Unit sales or transaction value is something that most business owners overlook. Yet it is a key metric in your business. Put it this way. If you can figure out a way to increase the unit sales value of each sale you make to a customer without hurting closing rates too drastically, you're onto a potential gold mine. This is metric 5.
With metrics 6 and 7 we get into areas that most business owners and all accountants will be familiar with – managing gross margins and fixed costs. Your overall position will improve when you can better manage your costs and your margins.
Let's now turn to the objectives:
If there's but one thing I want you to understand from this article, it is this:
BUSINESS PROFIT STARTS WITH BRAND AWARENESS
Profit doesn't start with a sale or a customer. It starts with quality brand awareness. Therefore getting quality brand awareness needs to be your first objective as a business owner.
Following on from that you need to also set objectives for the other six areas.
My clients quickly become familiar with these metrics and objectives as they form an important point of reference when I work with them. Plus, as you focus on these objectives, it will help you focus on the specific strategic and tactical solutions you need to achieve them.
So with that thought in mind, start thinking about these metrics and objectives in your business. In fact, make them a focal point for your business.
In your weekly meetings, put these metrics and objectives on your agenda and discuss them. And look to ways that you can improve them.
