Stop Using “Beer Case” Metrics to Run Your Business
Many business owners anxiously await the release of their financial statements so they can see how they are doing. At best the financials are reviewed monthly but more often than not they are reviewed on an annual basis.
Measure Business Performance
So how do these owners measure business performance in the meantime? They use the “Beer Case” method of measuring performance. This means that If they can afford to buy a case of beer at the end of the week once all their bills are paid they must be doing OK. In other words they have no true measurement system.
These business owners work very hard and produce great products and services yet they are always struggling to meet payroll and pay themselves a decent income.
When they actually do look at their financials the two numbers that are noted are top line revenue and the magic number at the bottom, profit/loss. If the numbers are less than expected how do you make decisions on which corrective actions to take?
By the time you get the numbers a lot of water has flowed under the bridge. Many opportunities to improve and measure business performance have passed by.
What caused the low performance? Was it sales, profit margins or productivity? Where and how do you even start to investigate the story behind the numbers?
Consider the amount of activity that is happening under the hood of your car as you drive down the highway. There are crankshafts and pistons moving, explosions happening, electronic pulses and fluids being pumped all at the same time. How do you know if everything is OK with the engine? You look at the dash board.
Just by monitoring about 5 different activities such as speed, RPMs, temperature, oil pressure and battery voltage you have a very good idea if your engine is running smoothly. Now you know where to look if there is a hiccup.
Monitor business performance in real time
By creating a dash board of your company and measuring Key Productivity Indicators (KPIs) you can monitor the performance of your company on a daily or weekly basis. Take corrective action in real time rather than waiting weeks or months to get the information you need.
The amount of activity you need to monitor will depend on the complexity of your business. Determine at least five key areas of your business you can monitor to ensure that your business is performing as expected.
The natural reaction will be to measure sales and gross margins which are important. Consider measuring the non financial activities that lead to the financial performance.
For example if you are in the manufacturing business look at the units/hour. Establish the number of units per hour that is required to generate a desired gross profit. You can monitor this metric on a daily basis to ensure your unit/s per hour on track. If they are not you can investigate and take corrective action quickly instead of waiting for your next financial statements to come out.
A common KPI in the trades is to measure the number of billable hours per day. As an indication of the tech’s productivity you can set daily goals for billable hours that would roll up to achieving weekly and monthly service revenues. If the number of billable hours is below the target amount you can take immediate corrective action to nip any problems in the bud.
Stop using beer case metrics to run your business. If you instill real measurement tools into your business you will not only be able to afford that case of beer on Friday; you will know exactly how many cases you can afford weeks in advance.
