More on Sales Metrics July 17, 2007Posted by David Dirks in Sales Metrics.
I’m pondering sales metrics again. Whenever we talk about sales metrics in this blog, let’s get one thing straight now: sales metrics are designed to get you to ask more questions about what they tell you and why.
Sales metrics by themselves cannot provide “the answer” to a downward or unfavorable trend. Likewise, positive sales metric trends make you feel good but what we need to understand is this: what is creating this positive sales metric trend?
Sales metrics are designed to help you peel back to ‘layers of the onion’, so you can be sure you understand the key drivers for a positive or negative trend. The Big Dogz are excellent at getting to the root causes of sales metric trends. They isolate key sales and profitability drivers AND make sure to keep the good ones and eliminate the bad ones FAST.
Here’s another one worth taking a hard look at: X by employee. The ‘X’ factors I would look at are: sales and expenses. Let’s look at ‘sales by employee’ first (if you have no employees other than yourself and/or family, then count each person that is at least 50% active in the business…you are the employees, right?).
This is simple enough to calculate. Take total sales by month, quarter, and/or year and divide by the average number of employees you have.
$500,000 2006 Sales divided by 6 employees = $83,333 per employee.
Doesn’t mean much unless you compare it to previous timeframes. So let’s break it down with another example.
1st quarter 2006 sales per employee: $30,000.
1st quarter 2005 sales per employee: $45,000.
Questions to ask about example #2:
• What are the reasons that my sales per employee are down in the year-over-year comparison?
• Did I hire more people in the 1st quarter of 2006? Why?
• Did I expand hiring too fast?
• What key drivers do I control that will help to keep sales per employee growing?
It’s the same thing with expenses per employee. Add ALL of your business expenses for one quarter and divide that amount by the average number of employees you had in that quarter. Now compare it to month-over-month (same period).
• Are expenses up, down, or flat?
• If they are increasing, is there a commensurate increase in revenues (or better)?
• What expense items increased or decreased more than 10% in the same period comparison?
• If they are decreasing, how does that compare to your sales per employee during the same period or month-over-month?
• If revenues are increasing and expenses are decreasing…why is that?
And so on…you get the point. Those questions beget more questions until you come to the point of getting grounded on what the key drivers are that are positively or negatively affecting your business.
Understanding the ‘what, when, why, and how’ of whatever my sales metrics are telling/showing me is critical. Remember, sales metrics serve one purpose: to keep you focused on asking more questions until you get to the core of 1) identifying what is working or not working and WHY, and 2) encouraging what works and quickly eliminating what isn’t.