In the digital marketing space, the importance of data (tracking it, measuring it, applying it to improve campaign performance) is commonplace.
In an online, e-commerce environment (for example) we’d measure unique visitors, traffic conversion percentages, cost-per-click, drop off ratios, average size of basket and a whole variety of other metrics that tell us very specific things about the health of a campaign, popularity of products, performance of a website or, indeed, the overall performance of a business.
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Knowing what data to look out for and, most importantly,what story those ones and zeros are telling you,isthedifference betweenmaking smart business decisionsand flying by the seat of your pants.
The latter may have brought you great fortunes in the past and, perhaps, your “gut feel” is the legendary secret of your success but, in a data-driven world, there is no need to chance your arm unnecessarily – and are there several key metrics that you, perhaps, are not scrutinizing as diligently as you could.
Mind Your Metrics
“A Business Metric is a quantifiable measure that is used to track and assess the status of a specific business process,” to quote an official definition.Here are 3 major (albeit obvious) metrics to keep an eye on.
Getting money in to pay staff, suppliers and other operational expenses isthe biggest challenge faced by businesses owners.
Cash Received, minus Cash Paid Out = Cash Flow.
It is important to keep in mind that turnover does not equal cash received. You can sell R10m worth of goods but if those goods are sold on varied payment scales (30, 60 or 90 days, for example) then balancing the flow of money from month-to-month could be tricky.
Improvement in cash flow can be achieved by:
- Getting customers to pay faster
- In turn, arranging to pay your suppliers a little later
- Keeping less stock/inventory – a decision you’d only really be able to make with confidence if there is accurate data to support it
- Asking for a line of credit
Cash is king and, ultimately, the heartbeat of your business. Two additional metrics contribute significantly to how strongly it beats.
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Accounts Payable (AP)
This is short-term debt that you need to pay – basically the bills at your doorstep or the sum of all the invoices that you have received but have not yet paid. . . “the sum of all fears”, some would say.
There are various ways to go about managing “accounts payable”, with delayed payments (for example) not a bad idea as long as it does not damage your supplier relations. Last thing you want is to go bottom of the pile in the eyes of your key suppliers.
This metrics is always important but especially so if your business is growing quickly – meaning you are buying more stock and investing in rapid expansion activities that could place severe pressure on your cash flow. “Payable Turnover Ratio” is calculated as follows:
Accounts Payable Turnover Ratio = Total Purchases ÷ Average Accounts Payable
This ratio reveals your bill-paying frequency. Ideally, you want it to remain fairly consistent as it keeps you in good stead with your suppliers and points to fair cash flow management.
Ways to keep your AP as low as possible include negotiating with suppliers in a timeous fashion, not only in relation to payment terms but also, and rather obviously . . . the price of goods ordered.
Accounts Receivable (AR)
Selling is only half the job, getting clients to pay for the goods or services sold – that’s where the rubber meets the road. Here there are a few things to keep in mind.
- Pending on the type of goods and services you sell there is the inevitable percentage of new clients that will have some kind of buyer’s remorse after the sale is made.
- It is important to ensure that your post-sales communication is of high standard– reinforcing benefits of the goods, supported by a case study or client testimonials if appropriate and making a clear case for the value that will be derived.
- If you are in the B2B space and you are delivering “services”, “solutions” and/or software products, for example,it is critical that your “customer take-on process” is well-defined and executed, meaning product rollout, performance against agreed SLAs and such give clients every reason to pay you on time – and in full.
Before considering steps like hiring “collection services” or imposing “late payment penalties”, making sure thatyour side of the deal is as it should bewill go a long way to treating a major cause of poor AR, instead of incurring additional administrative cost, treating its symptoms.
“Please sir, may I have some more (metrics)?”
I’ve only touched on three of the key metrics you need to keep an eye on and there are many others, including Direct Cost, Operating Margin and, of course, Net Profit. . . and you are likely to have additional sets relating to production, marketing and client retention, to name but a few.
What is important is that you take the time toknow what information really makes your business tick,and then find a way to collate that data in a dashboard view that makes it easier to spot potential problem areas – long before that potential is realised.
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Here you can invest in a variety of software solutions, developed to help companies visualise their business data and, of course, you can also look into professional data analytics services as offered by agencies such as NMP – but we’ll get into that side of things in greater detail later in this series.
For now just a parting note that no company, regardless of leadership talent, will reach its full potential without a continuous flow of key, actionable, information.
You can never know “too much”.
Knowledge is, after all,theultimate power that drives smart business forward.