Musings -
Measure Your Work
Your bottom line is your target, right? Oh, no. The bottom line does not tell about your profit or return on investment, it only tells you about your revenue. Cash in hand is not the same as money in your pocket.
Your ROI (return on investment) tells you how much you realized from your investment. For example; if you invest $100. to earn $150. Your ROI is 50%. If you check with other companies in your industry you will be able to determine what the average ROI is for your industry. Knowing this number is a good gauge of how you are doing.
If your ROI is very different from the industry average something is very wrong. It is the red flag that warns you that changes are necessary. You may be making the wrong investments, or you may have not figured your costs correctly.
There are some other metrics that should be included in calculating you cost of doing business besides wages, benefits, and the light bill. Do you know how much it costs you to acquire a new customer? This number would include all of your marketing, sale s, PR, and related overhead.
How strong is you base of repeat customers? High numbers will reduce your cost of acquiring new customers; low numbers mean that you have to redefine your marketing systems. Repeat customers improve your brand and image and cost you less through than getting new ones.
Keep in mind that most businesses will lose at least 10% of their customers each year through attrition; they move, their lifestyles change, or their needs change. You constantly need to be striving to replace them.
It is important that you have a system in place that can compile all these numbers for you. There are software choices or live people to help you. Find the best choice for your business and use it. It may be the most important tool in you toolbox.
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