Growing the profitability of your company or department is the usually the #1 Goal of Business Owners and managers. The best way to do this is to focus on increasing productivity. Surprisingly, leaders rarely measure the right things to understand the productivity of their business.
This is because the usual key financial metrics that measure the health of a business do not provide enough insight into what is actually happening until after it has happened. A key to success in business is understanding what to measure in order to select the right investments, programs, and initiatives to increase the productivity and efficiency of your business assets.
Think about it:
- What impact would it have if you could increase sales productivity by 10%?
- What if you could increase cash flow by 4% with no increase in revenue?
- What if you double the amount of revenue coming in, but maintain current expenses?
Here are the three areas you must measure if you are serious about growing your business :
- Productivity Baseline, this is measured by revenue per employee.
- Can vary between industries but should track your industry benchmarks
- $150,000/employee is a good target for small service-based business
- This should be increasing as the business grows due to economies of scale, maturity, and increases in productivity
- The higher this number the more impact downtime will have on your business
- Sales efficiency, this is measured by Sales Expense to Gross Margin
- Simply put, it is the measure of sales leverage and efficiency
- The lower this ratio the more investment should be made in sales
- If this ratio is trending upward it may be time to increase prices, you may be losing operating efficiencies, or you may be in a maturing market 20% or lower is ideal in services-based business
- Operational Efficiency, this is measured by Operating Expense Ratio
- How efficient is your organization in daily activities, or “running the business”
- This metric is a great measure of operational competency and maturity
- As revenue grows this will need to trend downward for the business to be scalable
- It should decrease with proper strategies to increase productivity and efficiency.
Once you have the appropriate data to measure your productivity, sales efficiency and operational efficiency you will have the information to help make Intelligent Technology decisions for your business. We have found that benchmarking these metrics quickly shows what area(s) of the business can be improved on.
For example: A sales force with outdated tools and access methods will impact your sales efficiency metrics. Alternatively, the back office with manual processes and low automation will reveal an opportunity to improve operational efficiency.
The good news is that once you have identified the opportunity areas in your business Stringfellow Technologies has a strategy that will improve these metrics and put your business on the path to increase productivity, efficiency, and profitability!