Key Strategic Indicators

How do you know if your company is headed in the right direction in terms of profits? Can you check the pulse of your business yourself, or do you have to rely on your accountant to provide an accurate profit and loss statement?

Readers of Inc. magazine may recall the story of the restaurant owner who would often call in from the road and ask for just one operating number to see how business was. His question: "What's the wait?" If the wait for securing a table was less than five minutes, he knew business was off; if over 15 minutes, he knew the restaurant was doing well. But, of course, few business owners can rely on just one number as a predictor of profits.

However, there are ways to "take the temperature" of your business, and determine its health at any given time. To do so, we work with companies to develop a Flash Report, which is a weekly or monthly collection of the key indicators of their operations. Listed on a single form, the Flash Report can be shared with department managers, whose work contributes to those indicators.

Of course, it's not always easy coming up with your best predictive indicators. Brainstorm with peers and coworkers, review what others have done, and ask yourself, "If things were going to change, what would be the first indication?"

Here are a few examples of indicators that can be included in a Flash Report.

Cold Calls. How many cold calls are actually being made? If you're making fewer calls, then your closing rate and average sale better be high, and your attrition rate low. Otherwise you'll see reduced profits.

Follow-up Calls. Ditto!

Closing Ratio. If your closing ratio is down, it's an indication you should be looking at what retailers' objections have been, what your competition is doing, and how you're communicating with sales staff and customers. It might only be necessary to improve the effectiveness of communicating your products' differentiated value.

Pipeline Report.What significant accounts are in development? More than prospects or targeted accounts, are there accounts that are truly in development, with a strong chance of converting within six months? Be realistic about their true potential, or you'll probably be disappointed.

Backlog. What's the value of your "booked" business? Do you have more work-in-progress than at the same time last year?

Sales per Employee/Labor Costs to Sales.These numbers set a benchmark for operational costs. If sales per employee are down and/or the percent of labor costs is up, then your product margin had better be up and other operational cost savings achieved. Otherwise, you're losing money.

Cash Flow.If you're moving your production overseas, or increasing your production runs to gain increased manufacturing margins, you may see an increase in your inventory, which could result in a reduction in product turnover. This reduces cash flow and can adversely impact profits.

Customer Satisfaction. Studies show that (in the restaurant and hospitality industry) for each customer who tells you they are dissatisfied there are 26 unhappy ones that won't tell you. Isn't that a scary thought?

On-Time Delivery. Are you getting your orders out on-time? Increasing prompt delivery will ultimately result in increased sales, with fewer stock-outs, increased inventory turn, and greater customer satisfaction.

Dollars per Rep. This information can be accumulated and assessed in variety of ways — average dollar per rep, average dollar per rep per order, average dollar per rep per account. When reviewing these numbers take into consideration the contribution of new product introductions and other mitigating factors that qualify the numbers.

Employee Turnover/Morale. If turnover of employees has trended up, there's potential for increased administration costs. There's also potential for increased errors, reduced productivity, and damaged relationships with accounts.

Gross Margins. If you have little to work with, you'll continue to have little to work with. The first sign of stagnation in growth is a reduction in gross margins.

Productivity. Every company has a different process and therefore a different measure of productivity. Some companies evaluate productivity in terms of how many products were assembled per employee, or how many boxes were shipped in a given time frame.

Sales to Plan. This is our least favorite indicator — but it's valid, assuming you were realistic and accurate when creating your business plan. If so, being ahead or behind on plan puts you ahead or behind in profits.

Unit Sales by Product Category. Make better and timely decisions on what products to push, promote, or purge from your assortment. Knowing the gross margin of each category allows a quick calculation of where your overall margin is heading; trends will indicate what your best opportunities for future product development are.

New Stores Opened. If new stores are not acquired at a rate greater than those lost, you'll suffer a net loss.

Same Store Sales. Are you adding more products to your assortment but not increasing sales to your existing accounts? Does this mean you are opening new market channels with the new products?

Number of Active Customers. This is a great indicator but you need to be very careful how you define "active." Consider your average order size and order frequency when creating the criteria for an active account.

While these are some of the indicators you could use, there are others that you may find easier to gather and assess. The important thing is to implement some kind of Flash Report that can give you greater awareness of how your business is trending and how you can positively affect profits.