Understanding Business Finances and Results – Part 3
How often should you measure your KPIs
Welcome to Part 3 of our series ‘Understanding Business Finances and Results,’ Now that you understand your business model and what KPIs are, and you have thought about which KPIs to measure, the next step is to determine how often you should measure KPIs.
In case you missed our previous articles, we have covered:
- Understanding Finances - Knowing the score
- Key Performance Indicators – what are they and what to measure
One of the big questions when it comes to KPI’s is, how often should you measure them? The frequency in which KPIs are measured is important. Like everything else there is a balance to be achieved between having a long enough period to measure the KPI for it to be meaningful but not too long that we are not tracking trends quickly enough to make decisions important to the effective management of the business.
To explain this in more detail, we will analyse the previous examples of KPIs for the Car Wash:
- Sales – this could be a weekly measure, given that payment facility accepts coins and credit cards weekly is an appropriate period to allow the clearance of the coin hopper and collation/reconciliation of the money collected with the merchant clearances.
- Number of Car Washes – this measure (if the machinery allowed for it) could be reported on a daily basis to allow for the owner to have their finger on the pulse and know what is happening. These figures could also be used to assist with the reconciliation of the weekly cash sales figure to ensure accuracy.
- Percentage Split of Washes between Standard and Deluxe – measuring this on a monthly basis would be appropriate unless the owner wanted to track more often. An instance where this would be the case is if a promotion was being run to upsell customers into a Deluxe Wash and therefore it would be appropriate to measure more regularly to gauge the success of the promotional activities.
- Gross Profit and Margin – measured monthly based on the calculation required and that some expenses that contribute to this measure may only be invoiced once a month to the business.
- Net Profit and Margin – measured monthly on the same basis as the Gross Profit and Margin.
- Number of Washes till next service of machinery – measurement will depend on the average time periods between services. For example, if the service periods were 2 years apart then measuring quarterly may be appropriate.
For each measure it is important to ensure that you are measuring often enough that it provides meaningful data to provide guidance for making decisions within the business.
Hanrick Curran has many years of experience supporting SME business owners to improve their business performance. If you would like to review how your business is currently performing and discuss strategies that can have a significant impact on your business please do our online business improvement assessment, speak with your usual Hanrick Curran advisor, or alternatively call Robert Pitt on 07 3218 3900.
Stay tuned for the final edition where we combine all of the key points from previous articles and put them together to determine what we do with all of this great information to ensure it makes a difference in your business.
Please note that this publication is intended to provide a general summary and should not be relied upon as a substitute for personal advice.