Don’t forget old customers
Some sales won’t come from new customers. They’ll come from previous customers who buy again. Typically, you’ll have a certain retention rate for those customers, and if you don’t know that figure it can certainly be investigated and found. Plot and record these and you have more lead indicators of future results, in this case the repeat sales from old customers. You have another metric to append to your pipeline here – old customers multiplied by retention rate equals existing customer sales.
Inside your business tract
So feeding your tract are new customers won and old customers kept. These are all producing work inside the business tract.
The value of that work depends on other metrics you can plot as lead indicators, well ahead of the month’s results, and also use to change course … price, order size and order frequency. If a typical sale value averages say $15,000, then what can you do to increase the price and justify a new average of $16,000? That adjustment might impact across the board, across new and old customers, and be enough to take profits to whole new levels.
Similarly, your order size might usually be a core service only. But you can try bundling different additions to that and shift your average value. And you might transact typically three time per year, but if you can encourage a few customers to transact just once more, that average might shift a little to 3.2 times a year and again make a huge difference. These increments are not new to metrics, but not a lot of companies plot them and use them as lead indicators.
These indicators take those new customers and existing customers and multiply them by price, by order size and by order frequency – new customers and existing customers multiplied by price by order by frequency equals earnings.
Monies in and out
Already inside your business tract are receivables due and money in the bank. The work might have already been done, so these figures show what’s in the belly and able to be spent on expenses and investments quite safely. Along with this should be figures showing outflows, the monies committed to expenses that you can plot in advance. You might show receivables and payables in terms of which week or month they’re likely to come in or be paid out. This lets you see a cash position and test scenarios – what if you speed up that large receivable and delay that payable?
Place it all in a dashboard and use it daily
With the measurements to date, you can build a powerful dashboard. A dashboard is a simple display showing vital metrics. But a dashboard that shows the business tract can be more useful than many other dashboards, because it allows decisions to be made faster on more parts of the company. Things like a need to cut costs, focus on converting more sales, lifting marketing activity and permitting purchases and investments.
In our consultancy, we plot a dashboard on a daily basis. It’s in nothing more expensive than Microsoft Excel. It plots what there is against what is needed. It shows prospective client volumes, gross pipeline and a net pipeline. It shows monies receivable for the next four weeks, monies in the bank, monies in but spoken for, fixed costs across the next four weeks and variable costs based on pipeline work. And at the bottom, it shows a net figure for the next four weeks.
It shows the business tract of the company, presented daily, for an investment of less than 30 minutes by a staff member.
Any company – no matter whether selling a large volume or small, products or services – can develop, populate and track metrics that are lead indicators of the entire business tract of that company. And armed with those metrics, the business can see what’s coming, it can test scenarios and it can change actions to change the results – well ahead of competitors.
