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Your Key Performance Indicators & How You Measure Business Success

Contribution: The Real Income

This is an article from P1M3 How Profit is Created in the Pillar 1 Your Key Numbers.

Beware Of The Busy Fool’s Syndrome: Learn To Focus On Contribution, Your Real Income

There is a huge danger in business…of focusing on growing the top line of sales or revenue in ways that don’t increase profit.

It’s sometimes called the busy fools syndrome!

You do more and make less money.

You need to move your attention from the top line sales number to your real income – your contribution.

What is Contribution?

In total Contribution equals Sales minus Variable Costs

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in 1 – Your KPI

Sales and Costs – How Profit is Created

This is From Pillar 1 Your Key Numbers and Module 3

Let’s try to de-construct your accounts and take your numbers down to the basic drivers of performance. Sales (revenue) and costs are like the two blades in a pair of scissors and the profit is the gap between them. In effect, profit is the small difference between two much bigger numbers.

You can’t work directly on profit because you have to influence sales (revenue) and costs.

Sales or Revenue

Your sales or revenue equals the volume sold multiplied by the average selling price.

A consultant may sell 100 days per year at £1,000 per day and have total sales of £100,000.

A steel stockholder may sell 2,000 tonnes of steel in a year at £400 per tonne and have total sales of £800,000.

In a multi-product business, total sales equals the cumulative of the quantity sold of every item multiplied by the price. [continue reading…]

in 1 – Your KPI

How Profit is Created P1M3

After the last module What Is Profit,   I hope you are clearer about what profit is and that you are determined to make more profit…much more profit from your business.

This module will get into the nuts and bolts of how profit is created.

Why Understanding How Profit Is Created Is So Important

When you understand how profit is made at a fundamental level you will gain an intuitive feel for ideas and whether they will increase your profit or prove to be time-wasting or money-wasting distractions. [continue reading…]

in 1 – Your KPI

Profit Gaps Example

We’ve gone through a lot of theory about profits and finance without having to resort to many numbers examples.

That’s about to change to help you to understand the Profit Gaps in your business. I do the best to keep the numbers simple.

Calculating Your Profit Gap – A Worked Example

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in 1 – Your KPI

Objectives and Key Results (OKR)

Objectives and Key Results is a goal setting and tracking technique pioneered by Google and used in other high tech successes like Twitter, LinkedIn and Uber.

In many ways, it’s an update on the original concept of Management by Objectives which was popularised by Peter Drucker in his book The Practice of Management in the mid 1950s. [continue reading…]

in 1 – Your KPI, 2 – Your Inner Game

Profit Extraction

I am not a tax expert and this isn’t meant as tax advice .

I believe business owners have a great opportunity to take out the profit in the most tax efficient way.

It’s the money you get to keep that matters and not what it’s called. [continue reading…]

in 1 – Your KPI

Market Costs Of Your Time & Money

To answer the question “How much profit should my business make?”, we need to look at the market cost of the resources it uses.

You probably already pay market prices for your supplies and staff but the two areas that may be heavily subsidised are what the business gets from its owner – management time and money invested.

Lets put a value on your time.

The Market Cost Of Your Time

I want you to look at what you do in your business – all the many hats you wear from salesperson, copywriter and Internet expert…to the things necessary to deliver your product or service…to the administration and bookkeeping. [continue reading…]

in 1 – Your KPI

How Much Profit Should You Make?

“How much profit should my business make?” is one of those classic questions without any clear answer.

It depends…although I was taught as an accountancy student that a 5% return on sales (or profit on sales) was average and 10% was good. [continue reading…]

in 1 – Your KPI

Reversing The Death Spiral of Profits

The story of Peter the Printer (link to death spiral) is a gloomy but the Death Spiral of Profits can be reversed.

You need to raise your expectations of the profit your business could …and should be generating.

The key question is:
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in 1 – Your KPI

The Death Spiral Of Profit

The death spiral of profits is meant to sound dramatic because its impact can be dramatic.

It’s based on the idea that lower expectations of your profit breed lower profits, so you then lower your expectations
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in 1 – Your KPI