By David Bloom, co-founder and CEO, fd unlimited
Imagine you’re flying a plane and you can’t see out the window. All you have available are the instruments on your dashboard to guide you. Whilst overwhelming to look at to the untrained eye, all those dials are there to serve a simple purpose — help the captain get his plane and occupants safely to where s/he is meant to be going.
In business, once you scale in terms of size and headcount to a point where you can’t run the business on intuition alone, there comes a time where you need to put in place your own dashboard — information that tells you that you’re heading in the right direction.
Of course this assumes you actually know where you are heading to and you’re not circling aimlessly above Heathrow until you run out of fuel.
Fortunately a business dashboard isn’t anything like as complicated as a plane. Some of the biggest most successful companies focus on just a few Key Performance Indicators (KPIs), the dials that make up the dashboard.
Every business will have some KPIs that are unique to the industry or sector it is in and every function in the business will have KPIs unique to its targets — sales vs. finance for example. This article lists just a few KPIs that are important to just about all businesses and should be presented on one page at the monthly board meetings or even daily if they are key.
• Debtor Days (or DSO — Days Sales Outstanding): this tracks your average collections performance. If your payment terms are 30 days and your DSO is currently at 90, it highlights a problem in your collections department.
• Cash Burn (weekly / monthly): this tracks on average how much cash you are burning through in a week or month. Divide your bank balance by your cash burn and it will tell you how many weeks/months you have until cash runs out
• Average Sales per Salesperson: Knowing this will help you establish which of your sales team are rock stars (smashing targets) and which ones are falling behind. It doesn’t always mean there is a performance issue but it highlights a possible problem. This can be tracked over time to see how it improves
• Average Gross Margin: knowing your gross margin will help you price on new products and services. If the margin on a new product is less than the average and it sells well you know your overall margin will suffer.
• Revenue per Head / Overhead per Head Divide your revenue and your overhead by the number of people in the organisation. This will help you benchmark whether you are top heavy or not bringing in the revenue to support the headcount — too many head office staff perhaps?.
These are just a few examples to get your juices flowing. Once you establish the KPIs that are right for your business, you can go on to benchmark them against your competition, your industry sector and yourself in prior periods. It will help you determine the value of your business relative to the competition and if you’re on track for a safe landing or something worse.
If you need help in establishing and maintaining KPIs for your business please don’t hesitate to email me at email@example.com
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