Know Your Numbers: The Seven Metrics Your Local Small Business MUST Track
According to the Small Business Administration, about one-fifth of small businesses will fail within their year in business. Just a mere one-third of businesses will make it to ten years.
What many business owners aren’t aware of is that there are simple steps you can take to keep you on the right side of that equation and increase your likelihood that your business will be around for the long haul. At the top of that list is knowing your numbers, and we don’t mean just knowing your daily sales. Yes, that’s certainly important, but by itself it tells you little about your performance.
It’s like looking at your weight, for example. Is weighing 150 pounds a good or bad thing? That all depends on various factors. Weighing 150 pounds could be clinically obese (if you’re 4 foot 11) or downright skeletal (if you’re 6 ft. 2).
You would need to look at your weight in context: How tall are you? Is it an increase or decrease over last week? What is that number like compared to last month? Last year? Do you have rocks in your pocket or are you holding a 10-pound baby? And what are your other vital statistics, like your age, temperature and blood pressure? Of course, that example is a little simplistic, but it serves to get the point across: numbers can be useful, but to really get the most from them, you have to look at various metrics and track them over time, and in relation to each other. When you do that, you can get a full picture of how you — or your business — is doing.
You have to look at various metrics and track them over time, and in relation to each other.
Here are seven metrics you must be tracking for small business success:
1. Inventory Alerts
Many small businesses rely on employees to oversee inventory and alert management when stocks are running low. This process is inefficient and introduces the potential for human error into your business that you may not be able to afford. When you don’t have a wanted or needed item in stock you don’t just miss out on revenue, you also damage your relationship with your clientele. After all, a sure way to send a customer away disappointed is to tell them your restaurant is out of their favorite dessert, or that your health food store ran out of the protein powder that’s become an indispensable part of their daily routine.
“If you’re sold out, then you’re turning away people who are primed to buy–and that’s worse than having no customers at all”
-Mike Sowinski, CFO Consultants Founder and Business Expert Mike Sowinski in Entrepreneur Magazine
Not managing inventory properly can also affect your bottom line by tying up too much of your cash in inventory. You may think, “well, it’ll sell eventually…” but what if the overstocked item is a slow seller and you have to discount it to move it? It also may be occupying resources that are more profitable or that represent faster turnover.
In fact, after looking at two decades’ worth of retail data, researchers from Vanderbilt and Cornell found that the companies with low inventory and high turnover outperformed those with high inventory and low turnover. Proper inventory management is even more critical in the restaurant business where spoilage and waste are huge issues. According to a report from the Natural Resources Defense Council, up to 10 percent of food purchased by restaurants becomes kitchen loss before reaching the consumer. Food is typically the largest cost for a restaurant, so reducing food waste even a few percents can be the difference between a profitable restaurant and going bankrupt.
Additionally, regardless of the type of business you run, proper inventory frees up money to use in other revenue-generating areas, such as marketing.
Instead, of guessing, imagine having an inventory alert set up right in your POS to let you know when it’s time to order, and what and how much to order. This information lets you limit waste, direct resources where they’re most effective, and free up cash flow.
2. Top product sales
Any savvy business owner knows at a gut level that you should figure out what products are selling best — and sell more of it. Likewise, you want to eliminate the clunkers and maximize your sales. However, it’s the “figuring out” part that can be tricky. After all, you’re probably not at your business 24/7. You can’t rely on anecdotal evidence from your staff (your morning employee says, “the new mocha’s a big hit!” while the afternoon barista tells you they didn’t sell a single one… who’s right?). The only way to know at a level that can drive your business decisions is to track it.
Having a POS system that can provide reports on top product sales lets you see objectively which products are the most popular. Then you can cross-reference this data with other reports, such as profit margin and inventory, to ensure you’re investing your cash where it’s going to give you the biggest returns to the bottom line.
For example, the latest quarterly report shows that your customers love the black Yeezy trainers but aren’t so excited about the PVC wedges, and you’re only selling one $850 pair every week. Compare that to the trainers, which retail for $250 and are selling three pairs a day.
Now, you can make an intelligent decision about whether or not you should order three times as many trainers as wedges because you’ve got the hard data to work with. Having this information lets you plan promotions for poorly selling items with higher margins, or dedicate more shelf space to inventory that will turn over quickly. Once again, the name of the game is looking at the numbers in the context of other metrics so you can make the right business decisions to reach your goals.
3. Sales by hour
If you are not currently tracking some of the other metrics, such as product-based profit margin and top-performing products, it may seem like overkill to talk about tracking sales by hour, but this data is essential, particularly in a service-based business.
When you know your sales peaks and valleys over the course of the day, you can make adjustments like:
Ensuring you’re staffed correctly for peak sales hours, so you can maximize sales results and provide ideal customer service. If you know there’s a post-church rush on Sundays, you can staff accordingly.
Saving money by reducing staffing levels during slower hours. Staff to your traffic levels — not above and beyond what you need to serve your customers effectively.
Implementing specials for slow days. If midweek evenings are a slow night for your bar, implement “Tequila Tuesdays” to bring in the customers.
Adjusting your marketing efforts to correspond with different times of the day. For instance, you can run Facebook ads just on specific days or times, or create special “drive time” radio ads for your pizzeria that play only when your potential clients are more likely to be in the mood to pick up a quick dinner on the way home.
Again, it’s not just the data that makes an impact; it’s the decisions you can make based on the data that will make you a more effective businessperson. Any time you can cut costs, provide a better experience, or increase traffic — or all three — you’re in the driver’s seat for building your business.
4. Sales by employee
“That which is measured, improves”
-Peter Drucker, Business expert
Nowhere is this truer than when you’re tracking sales by employees. Not only does creating a log of sales by employee over time help you understand who your best salespeople are so you can reward them accordingly, having this data helps in a number of other ways as well. For example, it allows employees to compete against themselves. A little healthy competition isn’t a bad thing, particularly if employees are encouraged to compete against themselves and improve their own metrics.
It enables you to create a “best practices” training environment. Your POS report shows that Syd is a whiz at encouraging diners to start with an appetizer, and her tables never leave without ordering dessert. How does she do it? Now that you know she’s got the top sales for the past three months, you can dissect her approach and teach it to your other employees. Most employees want to perform better, but simply don’t know how. Now they can model your most successful employees and improve their own sales.
It makes it possible to identify the bottom performers. You probably have a feel for who your best — and worst — salespeople are, but it’s tough to make employment decisions based solely on your gut. With your POS per-user sales report, you now have proof to back up your hunch. Based on that data, you can implement remedial efforts to train your less effective performers — and eliminate them, if the need arises.
Just knowing how people are performing will help with the myriad management and training decisions you have to make on a regular basis.
5. Sales by weather
Have you ever wondered how the weather can affect your business? Wouldn’t it be nice to know — not just guess — if the hot weather really does cause people to head to the barbershop for a trim? What if you knew that a rainy day meant half as many customers, while temperatures over 80 degrees brought a 15 percent increase?
Sometimes, logic doesn’t pan out. If it rains, are people more or less likely to head to the mall? Are they more or less likely to order another round of drinks? Are they more or less likely to buy a new sweater, stock up on reading materials at a bookstore, or get their nails done?
Only your POS data can tell you with certainty.
And once you know what the data says, you can take action:
Bring on extra staff when the data shows the weather’s going to have a positive impact on business, while reducing staff when you know times will be slow.
Do an email blast for a “Christmas in July” sale on accessories because you know your store traffic drops when the temps rise.
Run a promo where every time the mercury hits 90 degrees, you’ll give customers 25 percent off their order.
Lest you think tracking sales according to the weather is wasted effort, consider the birth of a little beverage called the Frappuccino. In the early 1990s, a manager in Starbucks’ Southern California region noticed that sales of their coffee drinks dropped when temps rose.
After doing a test run in a single LA-based store, the company rolled out its new iced blended drink nationwide in 1995. “Frappuccino changed the trajectory of the company by bringing in new customers who were not normally coffee drinkers, and filling its stores in afternoons and during warm weather when coffee business was typically slow,” according to the company’s website.
“20 years ago, the business, Starbucks hadn’t launched into a whole host of warm weather markets. We were reliant on the holiday season,” manager Dina Campion said. “With Frappuccino, we were able to level out the dips in store traffic in the summer.”
To date, the beverage and its tens of thousands of iterations accounts for about 11 percent of the company’s overall revenue, or over $2 billion per year…
…All because one manager noticed the link between the weather and sales.
Your Most Valuable Tool
Running and growing a small business is not easy. However, having real-time, detailed data is like having a personal advisor. It allows you to decrease costs, increase revenue, staff appropriately to serve your customers, and save time and make decisions with confidence.
In sum, having the right data at your fingertips enables you to make more effective decisions with confidence. When you have the metrics you need, when you need them, you’ve got a competitive advantage over other businesses in your class.
While it may sound complicated or nearly impossible to track these various numbers, it’s actually quite straightforward, with the right POS system. Your support expert can even help set up the reporting so you don’t even have to think about it with the needed data coming right to you.
Trying to make decisions without all the information is like trying to land a plane with no runway lights. It can be disastrous to have partial data. Don’t settle for half — get all the information you need to build your profitable small business.
If you’d like to hear more about how Bluume can help you track the data you need to make the right decisions, contact us today.