Looking at all the numbers, not necessarily in the right order
As accountants, it is always assumed that our role begins and ends with the financial aspects of a business, be it for compliance reasons or to assist clients in the management of their trade or profession.
However, working with our clients we look behind the numbers. For example, an increase in sales might indicate that the business is successful, but how many companies simply set sales targets without thinking how they are going to achieve them?
Let’s take an typical scenario. XYZ Limited makes widgets. It sets a Key Performance Indicator (KPI) of increasing sales by 20% and sets its sales team the task of achieving this, without any guidance.
We would say that setting a sales figure is not, on its own, a realistic KPI for this business. Where will the increase come from? We could break the 20% increase down into a much more achievable set of KPIs.
1 Pricing – can we achieve an inflationary increase by raising prices?
2 Will more meetings with customers lead to more sales, as we explain new and variant products?
3 Identifying new markets
4 Targeting new customers who currently use competitors’ products
Each of these could be set as a KPI – for example, ask the sales team to increase the number of customer meetings by 10%, contact 2 potential new customers per day and so on.
We then look at the value of the sales. Will we have to cut profit margins to sell more, perhaps by offering bulk discounts? Its no good increasing sales, if all we are doing is working harder to achieve lower profit margins.
We can apply this methodology to most parts of the business. Many respected commentators now say that KPIs should not be financial, they should be about performance measured in other ways such as improvements in efficiency, the rate that new contacts are converted into customers, the amount of meetings held etc.
Think how this might apply to your business, and give us a call. We can help with much more than just the numbers.