Four More Key Metrics to Measure and Manage

Four More Key Metrics to Measure and Manage

by | Nov 7, 2013 | Advice

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This post continues our discussion of key metrics that business owners should focus on to increase profitability. The information in this post comes from a newsletter published by Bill Billingsley, a business broker and owner of The CBB Group, Inc.

Below the Line Expenses
In the accounting world, expenses that occur as a result of a company’s major or central operations are classified as operating items. Items such as revenues and costs of goods sold fall under this category and are considered as “above the line” expenses. Expenses from peripheral or incidental transactions (such as gains and losses from asset sales, lawsuits, changes in market values, etc.) are classified as nonoperating items and are reported as “below the line” expenses below the EBIT line (termed simply “below the line”).

For business owners, measuring your below the line expenses as a percentage of revenue serves two purposes. First, it allows you to determine if your expenses are in line with current revenue levels and second it can be used as a supplemental measure of efficiency.

Customer Concentration

Business owners should measure the percentage of revenue that each customer represents. If any one customer occupies more than 10% of your company’s revenue, this can pose a risk to continued profitability. Buyers are particularly sensitive to this issue unless they are industry buyers who are knowledgeable about the customer base.

Customer Profitability

Understanding how profitable your customers are can take time and effort to determine, but doing so can lead to immediate increased profitability. An added benefit is the ability to build an ideal customer profile that allows you to better focus your sales and marketing efforts.

Product Profitability

Like customer profitability, understanding the profitability of your products and services is essential to driving long term success for your company. Firing a customer or discontinuing an underperforming product or service can be difficult but may be far more profitable in the long term.

The metrics discussed in the last two posts may not all apply to your business, but measuring the ones that do matter can be the key to increasing short term profitability and long term success.

If You Don’t Measure It, You Can’t Manage It: Key Metrics for Every Business Owner

If You Don’t Measure It, You Can’t Manage It: Key Metrics for Every Business Owner

by | Nov 5, 2013 | Advice

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Management consultant Peter Drucker famously said “If you can’t measure it, you can’t manage it.” Bill Billingsley is a business broker and owner of The CBB Group, Inc. After years of working with small business owners, Bill has found that owners often get caught up working in their business rather than on it. As a result, he says, most owners don’t take the time to look at the metrics that drive their business and how they affect the value of the business.

Bill has identified seven key metrics that are common to most businesses. These are the metrics that every business owner should be managing because they are also what business buyers tend to focus on. We’ll discuss each of those metrics and explain why they matter in the next two posts.

Here are the top three metrics for business owners to measure and manage.

Profitability
This is the metric that most business owners looks at each month. Buyers also look at profitability as a percentage of revenue. This allows a buyer or an owner to evaluate and compare the company against its competitors in the same industry niche regardless of size.

Gross Margin
Knowing what your gross margin is on a monthly basis and the major components that make up that margin allows business owners to remain focused on managing the costs of goods sold (or services provided). Having a gross margin that meets or exceeds industry averages is one of the top drivers for increasing value that a buyer will pay for.

Revenue
Tracking revenue month over month versus the same month in prior years is essential to evaluating your current marketing and advertising strategies as well as sales force performance. Buyers will look for positive trends, seasonality and size when valuing a company.