Identifying Your Leading Indicators of Profitability

Identifying Your Leading Indicators

of Profitability

Jim HeilbornJim Heilborn Associates

Identifying Your Leading Indicators of Profitability

Standard measurements Current Ratio – Current assets/current liabilities=current ratio Quick Ratio – (Current assets-inventory)/current liabilities=quick ratio Gross Profit – Revenues – cost of goods= gross profit Gross Margin – Net sales – cost of goods sold=gross margin

percentage Net Operating Expense – Gross margin – SG&A = net operating profit Net Profit – (Net operating profit+ income) – (other expenses + taxes)

=net profit

Gross profit ratio, Pretax profit ratio, Sales-to assets ratio, etc. etc. All important…but............


THE KEY COMPONENTS

SALESADMINISTRATION

OPERATIONSFINANCE


KNOW YOUR NUMBER 1 KEY

INDICATORTHE RESTAURANT


LEADING INDICATORS VS.

TRAILING INDICATORS


KEY COMPONENT

SALES


Value -

What customers and investors are willing to pay for, that employees are willing and able to provide. In a public, for-profit enterprise, sustainable value requires all three groups. Value must be worthy to those paying and those providing or it will not endure.

Mickey Connolly and Richard Rianoshek, Ph.D.

The Communications Catalyst


Every product or service you can provide is one less reason for your customers to talk to your competitors.

Every product or service you provide is one more reason for your competitor’s customers to talk to you.


Customer Name Customer Expectation

Score

1 - 5

Comments

ABC, Inc. Sales

Product & Design

Order Administration

Associated Services

Delivery & Installation

Customer Service

1= Low 5 = High


KEY INDICATORS SALES

SALES ACTIVITY – SEE CHART BID LISTS

– NUMBER OF BIDS PLACED– PERCENTAGE OF SUCCESS ON BIDS

DOLLAR VOLUME OF QUOTES NUMBER OF ACTIVE CUSTOMERS NUMBER OF NEW ACCOUNTS NUMBER OF NEW ORDERS AVERAGE GROSS MARGIN/PROFIT GROSS PROFIT PER DAY DOLLARS PER REP BACKLOG SALES TO PLAN


GOAL TASK/OBJECTIVE TIME FRAMEAverage monthly gross Average daily sales = $ Within next

___monthssales = $

Average monthly GP $___________ Within next ___months dollars = $

Number of calls needed per day -

Number of appointments neededper day =

Number of orders needed per day to equal daily average of $________=


GOAL TASK/OBJECTIVE TIME FRAME

Number of orders neededper day to equal daily average

of $__ GP dollars = $

Ratio of appointments to orders = ____ appointments to ____orders

Average dollars per sale = $

Average GP dollars per sale = $

Average Number of calls to make per week =


GOAL TASK/OBJECTIVE TIME FRAMEAverage Number ofcalls to make in next 30 days = 30 DAYS

Average Number of calls to make in next 60 days = 60 DAYS

Average Number of calls to make in next 90 days = 90 DAYS

Number of new accounts to open in next 30 days = 30 DAYS

Number of new accounts to open in next 60 days = 60 DAYS


GOAL TASK/OBJECTIVE TIME FRAMENumber of new accounts to open in next 90 days = 90 DAYS

Sales MixNumber of orders/dollars generated from new Accounts per month = /

Number of orders/dollars generated from established ongoing accounts = /

Review of Top Ten & rolling forecast to identify and focus on opportunities and activity On a weekly and

monthly basis


GOAL TASK/OBJECTIVE TIME FRAME

Product MixCasegoods dollars $

Seating dollars $

Systems dollars $

Other products dollars $

Number of orders/dollars generated with primary vendors per month = /$


FORECASTING -

A CRITICAL METRIC

Identifying Your Leading Indicators of ProfitabilityTARGETING PLANName Date

Top Ten Hot List/Close/Dollars Top Ten Target List1. 1. 2. 2. 3. 3. 4. 4. 5. 5. 6. 6. 7. 7. 8. 8. 9. 9. 10. 10.

Lead Sources

Prospecting Plan30 Day Booking Forecast - 30 Day Billing Forecast -


ACCOUNT VENDOR BOOKING MONTH

$’S BOOKED

GP% / $’S BILLING MONTH

$’S BILLED GP% / $’S

ABC, Inc. Teknion 1. Nov. 40,000 34/13600 1. Nov. *20,000 34/6800

OFS 2. Dec. 15,000 28/4200 2. Dec. 40,000 34/13600

Seatability 3. Jan. 6,000 35/2100 3. Jan. 15,000 28/4200

Cowabunga Teknion 1. Nov. 32,000 31/9920 1. Nov. *9,000 35/3150

Global 2. Dec. 27,000 33/8910 2. Dec. 32,000 31/9920

Mayline 3. Jan. 19,000 25/4750 3. Jan. 27,000 33/8910

1=CURRENT MONTH

2=NEXT MONTH

3=MONTHAFTER

NEXT

$TOTALS:

1. 72000

2. 42000

3. 25000

$TOTALS:

1. 23520

2. 13110

3. 6850

$ TOTALS:

1. 29000

2. 32000

3. 42000

$ TOTALS:

1. 9950

2. 23520

3. 13110

* Represents booking from previous forecast .



STRATEGIC PARTNER OR ABUSIVE MATE?

SELECTING YOUR PRIMARY

VENDORS


PRIMARY SECONDARY

TERTIARY






KEY COMPONENT

ADMINISTRATION


KEY INDICATORS ORDER PROCESSING– TIMELINESS– ACCURACY– INTERNAL PROCESSING COSTS– ERROR RATE– COMMUNICATION

INTERNAL EXTERNAL


KEY INDICATORS HUMAN RESOURCES

– Productivity

– Contribution

– Participation

– Dependability


KEY COMPONENT

OPERATIONS


KEY INDICATORS OPERATIONS

SELLING SERVICE AS A PERCENTAGE OF YOUR BUSINESS

PROFITABILITY OF SERVICE OFFERINGS DELIVERY TIME AND COMPLETION INSTALLATION COMPLETION PUNCHLIST SERVICE CALLS – COMPLETING ON THE FIRST CALL FINAL SIGN OFF







PROCEDURE QUANTITY PER HOUR VDTCRANK 1 - 2

VDT PNEUMATIC 1

CHAIR PNEUMATIC 1 - 3

BROKEN CHAIR ARM 1 - 3

BROKEN CHAIR BACK 1 - 3

BROKEN CABINET DOOR 1 - 4

STUCK/JAMMED DRAWER 1 - 4

LOWER A WORK SURFACE 1 - 3

ATT ACH A KEYBOARD 1 - 4

REPAIR A KEYBOARD 1 - 2

TASKLIGHT REPAIR 1 - 4

INSTALL NEW TASKLIGHT 1 - 5

INSTALL LOCK IN BKC WITH STEEL DOORS 1


Meeting the testDetermine the need for the product or service

Is it a long-term sustainable need?The cost of providing the product or serviceLevel of service you and your company can provide “Implementability” Impact on your current businessR.O.I – Return on InvestmentMeasuring for results


The Cost of Service

Labor - Wages, Taxes, Benefits

Space – Taxes, Utilities, Rent/Mortgage,

Insurance, Office Equipment & Supplies,

Maintenance

Equipment – Tools, Machines, Maintenance,

Supplies, Vehicles, Insurance, Phones


KEY COMPONENT

FINANCE

Identifying Your Leading Indicators of ProfitabilityKEY INDICATORS FINANCE/ACCOUNTING

ACCOUNTS RECEIVABLE

– 75/10/10/5 RULE– DSO

ACCOUNTS PAYABLE

– DISCOUNTS TAKEN/OFFERED– LINES OF CREDIT AND LINE DRAWN– VENDOR RELATIONSHIP

CASH FLOW

– WORKING CAPITAL - DOLLARS AND RATIOS BANKING RELATIONSHIPS BOOKED TO BILL RATIO


BENCHMARKING

–OFDA

–BIFMA

–MANUFACTURERS

– INDUSTRY ORGANIZATIONS


www.jheilbornassociates.com [email protected]

916.434.8711

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Identifying Your Leading Indicators of Profitability