How much does it cost to operate your business for a day? I have two companies, a manufacturer and a wholesaler. It costs $34,000 each day to operate the manufacturing company, and $3,200 to operate the wholesaler. Why is that important? It serves as an instant indicator of profitability, and gives me the earliest possible warning of developing problems. The numbers are calculated very simply. They are the total annual cost of EVERYTHING BUT THE MATERIALS WE USE, divided by the number of days the business operates in a year. They are what we spend on wages and benefits for all our people, plus rent, and utilities, and advertising, and
What do you measure in your business? Too often, the answer is: The wrong stuff. Many leaders simply look at the numbers their accountants or software give them, without asking: What do I really need to monitor, so that we have opportunities for improved operations — and higher profitability? Paradoxically, when devising measurements to manage by, it’s typically a good first step to decide what NOT to measure. A great example of this can be found in retailing. A retailer doesn’t create value by manufacturing a product. Instead, a retailer creates value by having the right product, at the right time, in the right place — supported by knowledge and service.