If lead conversion rates are improving.<\/li><\/ul>Keep your costs under control<\/h4>
Maintaining a healthy gross profit margin is critical. If your gross margin percentage is falling, take swift corrective action. The causes could include higher input prices, a changing product mix, production inefficiencies or excessive discounting.<\/p>
If you run a service business that bills out time, it can be useful to treat consultants\u2019 salaries as a variable rather than overhead costs because this makes it easier to work out who is making you money.<\/p>
Collecting receivables efficiently<\/h4>
Your accounts receivable collection period (the number of days on average to collect payments from customers) is an important driver to monitor. Try to improve on your past performance and at least match the industry standard.<\/p>
If the standard is 35 days, and you\u2019re taking 45 days on average to receive payments from customers, then improve your collection activities immediately. Bill promptly and highlight overdue payments for prompt action.<\/p>
The key is consistency \u2013 late payers should know that you\u2019ll unfailingly contact them.<\/p>
Optimal inventory levels<\/h4>
Your inventory turnover rate is the ratio of cost-of-sales to inventory. Most businesses aim for a high inventory turnover rate because it indicates an efficient use of capital resources. If the ratio decreases, find out why.<\/p>
For example, you may be over buying or purchasing inventory that you cannot sell. The more you can break down your inventory figures into separate product categories, the easier it will be to pinpoint problems.<\/p>
Hours billed<\/h4>
A management consulting firm had a disappointing level of monthly sales for years until the owners realized that hours billed per consultant per week was the key driver.<\/p>
Once they began monitoring this, they could see which consultants were earning the revenue. Attitudes changed overnight and sales increased significantly. The firm was then able to target small improvements that were manageable \u2013 such as billing 30 minutes more a day each.<\/p>
Turning over staff<\/h4>
A travel agency recognized that staff turnover was their driver. An experienced sales person was found to be three times more productive than a new recruit. The recruitment and training process for new salespeople was also a major burden on the business.<\/p>
To reduce staff turnover, the travel agency introduced a long-term incentive element into salary packages. It also introduced quarterly performance reviews.<\/p>
Defective goods<\/h4>
An engineering company found that the defect ratio was a driver. Defects led to goods being returned, extra time wasted on rework, delays in payment, and lower profit for the business. The company reorganized the workforce into \u2018quality cells\u2019 and productivity increased significantly.<\/p>
Identifying the five key drivers you need to focus on<\/h3>
What are the key factors that enable your small business to outperform its competitors? Try to identify the five key drivers you need to focus on.<\/p>
The questions you need to ask yourself are:<\/p>
- What drives the sales figures?<\/li>
- What drives the costs?<\/li>
- What drives the cash flow?<\/li><\/ul>
For most small businesses, the key drivers include major cost-efficiency items. For example, two important drivers for a chicken processing company were employee costs and yield (the weight of meat taken from each chicken). Both had a major impact on the gross margin.<\/p>\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t