Business Metrics: How to constantly monitor the health of your business

By Jacob Pfeffer, COO of Splash Perfumes

October 5, 2005

  Background:
Since graduating from George Washington University with a  degree in Entrepreneurship and Small Business Management, I  have operated Splash Perfumes, a retailer of fine fragrances in   Southern Florida. Besides the three physical locations, Splash   Perfumes also operates an e-commerce site. In May of 2005, I   expanded our holdings and opened a retail watch store

Advice: Managing a business requires a great deal of time and commitment. While sales is the lifeline of any business, it is important that a business owner take time away from sales to periodically gauge the health of the business. I do not have to stress the importance of accurate accounting and bookkeeping. Any business owner should know that keeping track of the financials is essential for both legal and fiscal reasons. While the big three statements (income, cash flow and balance sheet) can help reveal in what areas a company is underperforming from a financial perspective, they tend to fall short when it comes to making strategic management decisions.
To compensate for these shortcomings, every business owner must create and track detailed metrics that more accurately provide clues as to the state of the business. For example, in the retail industry we use a myriad of metrics including: a) Sales per square foot b) Sales per hour c) Dollars per sale d) Units per sale e) Customer conversion rates
By keeping abreast of these indicators on a regular basis, a manager can better investigate the causes of increases and decreases in sales. For example: If units per sale are down 25% in the last month, it could be that the sales staff is not focusing enough on "up-selling" to the customer. If the customer conversion rates as well as the dollars per sale are down at the same time, it may often be an indicator of prices being set too high. Take time and analyze what metrics are important for your business. Ideally, an automated reporting system should be established that allows you to view and compare the metrics on a weekly or monthly basis.