Your business may be approaching a June 30th year-end or perhaps June 30th is the half-year mark in your business year but, whatever the circumstance, you need to be taking some time to review progress towards your annual goals. We encourage our clients to set up benchmarks to help track their progress throughout the fiscal year.
A benchmark is any unit of measure that you can use consistently in tracking performance. Let me give you some examples of benchmarks that I like to see used in various businesses. If you have a restaurant you have customers and the number of customers you have can be a very useful benchmark. Every time a customer order is taken the person taking the order can write on the order slip itself the number of customers who are involved in that order. We know that the order is processed and delivered to the customers and then they pay for the order. Somewhere in that process the business needs to enter in its records that one extra piece of information: the number of customers served with this one order. As you collect this information you can begin to use it in your business.
You can answer several questions that will give you some insight into your business numbers such as how much is the average customer order, and how many customers do we serve in the course of a day/week/month or year? How much does in labor cost does it take to serve a customer? I bet you can think of more uses for this single piece of benchmark information. After collecting the same information for a period of time you can then take the benchmarking to another level by comparing this week/month/quarter or year to last year’s benchmark numbers and then you will learn about how your costs have changed per customer as well as how the number of customers has changed. Even if your sales are higher this year than last year you need to focus on the customer and how that benchmark has changed.
If your business is a hotel or motel you have an inventory rooms available and so the number of rooms rented in a period of time is an excellent benchmark to track. If your business does deliveries to customers then perhaps the number of miles driven to deliver your customer’s goods would be a useful benchmark to track. Think of all the information that can be pulled out of knowing the number of miles that your business drove in a period and the costs of those miles.
Other benchmarks include the number of productive hours billed to clients in most service orientated businesses, the number of retail sales recorded, and, well, you should be getting the idea by now. You should look at your own business and come up with your own benchmarks and think about how they will give you some important insights into your business and the numbers.
Of course we remain available to help you come up with benchmarks and some ways to use them in your business. Give us a call!
Jeremiah K. Murphy, CPA is an accounting firm providing tax services, audits and business consulting.