We all want to live a meaningful and enjoyable life, correct?
Your cholesterol, blood pressure, blood sugar, and body mass index numbers are key indicators of your risk for serious illness. If you know these important numbers, you can make changes to improve your health and reduce your risk of developing heart disease, diabetes, and other serious illnesses, which ultimately can lead to your death.
Why then, do so many of us ignore – or do not implement – the same principles in our business?
Sunday Adelaja said, “The earth is crying for people who make sound judgments and informed decisions.”
I believe all entrepreneurs have good intentions. We get caught up in working in our business rather than in our business. We need to learn how to delegate and empower our employees to do their respective jobs efficiently and effectively. Without a doubt, there are instances where entrepreneurs need to dig in and resolve a situation. But you need to focus on the business. I personally like to implement a policy of “Manage by Exception. “
A simple yet effective way to achieve this is by knowing your numbers.
Every industry has its own Key Performance Indicators (drivers). Through these indicators, you can gauge your company’s performance from period to period. In larger dynamic companies these indicators are updated daily, as real-time data will guide management to remedy anything going awry.
A Key Performance Indicator (KPI) is a measurable value that demonstrates how effectively a company is achieving key business objectives. Not all KPI’s are financially based.
Here are some basic financial KPI that every entrepreneur should know:
- Gross Volume
- Margins (Theoretical vs Actual)
- Fixed Cost
- Variable Cost
- Gross Margins
- Net Margin
- Profit & Loss
- Inventory Turns
- Cash flow
- Days Sales Outstanding / Account Receivable Collection Period
- Days Payable Outstanding / Account Payable Outstanding
Non-financial KPI entrepreneurs should know
- Sales funnel
- Client Acquisition cost
- Lifetime Value
- Customer Satisfaction & Retention
- Number of Customers
- High Risk
Each Industry has specific indicators, some may overlap – to name a few
- Customer Support Tickets
- Time to fill vacancies
- Labor Cost
- Bugs within a software application
- Damaged merchandise
- Manufacturing defects
- Labor Efficiency
- Sales Call closure rate
The bottom line is to KNOW YOUR NUMBERS. Time and time again, entrepreneurs are making decisions without knowing the facts. The consequences could potentially be costly!