Can you identify your Key Business Drivers?
Updated: Jul 26, 2019
Identifying and monitoring the key drivers of your business is critical to boosting profitability. A key business driver is something that has a major impact on the performance of your specific business.
A whole range of internal and external factors affects the performance of every small business. The secret is to focus on a handful of key drivers that:
· reflect the performance and progress of your business
· are measurable
· can be compared to a standard, such as a budget or last year's figures, or an industry average
· can be acted upon.
Sales or revenue is one indicator that it easy to monitor. Most businesses measure this at least monthly but many measure it daily or even hourly. But sales might not be the actual driver for your business. It could instead be the number of sales calls you make, or your follow-up service campaign, or the amount of traffic that hits your website. These are the drivers that help you generate sales.
Use your historical figures as a benchmark for your current performance. Figures for last year and last month provide hard facts and established patterns for your business and identify potential problems and opportunities. In addition to your internal benchmarking, try to compare your business with other similar businesses, especially competitors. Your accountant, or industry body may be able to supply comparative figures for your industry or help you access the data.
Some Key Drivers
The range of business drivers varies enormously from business to business. For example:
· sales leads in a capital goods or service business
· sales per square metre in a retail business
· machine downtime in a factory
· 'first time fix' in a maintenance business.
Even direct competitors may use different drivers to improve their business performance. For example, prime location is not a key driver for an internet-based business selling computer parts, but it is for a 'bricks and mortar' competitor that relies on well-located retail stores to attract foot traffic.
Following are some drivers that could be relevant to your business:
Enquiry levels (or number of leads, or quotes given) provide early warning of any peaks or troughs in your sales.
Monitor where the enquiries come from to establish which marketing campaigns work. If you have an established enquiry-to-sales ratio and know the size of an average sale, you can use the enquiry level to forecast turnover.
When you review sales, monitor the figures that show what is happening:
· Which categories of product are selling well?
· How are your priority products (those with the best margins and the best payment terms) selling?
· Are your conversion rates (the ratio of leads to sales) changing?
If you don't know where your queries are coming from, now is the time to find out so you can assess if there are more where they came from.
In part two, we'll look at your costs, stock and inventory levels.
If your annual sales are in excess of $500,000, you are planning to exit your business and need help to get your ‘dream selling-price’, contact us now. Our first meeting is complementary and can help you to work out the way forward to maximise your business value. Just click on the link below:
Original Article NAB Australia