Step 2 – Analyze KPIs and ratios
Pain point: How much production do I need daily to be successful?
Once upon a time, there were two brick laying companies, named ABC Bricks and XYZ Bricks.
Every afternoon, the owner of ABC Bricks called his supervisor and asked, “How many bricks did your crew lay today?” The manager replied, “Oh, about 800 bricks or so.” The owner answered, “Let’s try to do better tomorrow.”
Conversely, the owner of XYZ Bricks called his supervisor first thing every morning and said, “You must lay 1,000 bricks today.”
What is the difference between these two business owners?
The first owner was reactive and hoped his production was enough to meet his needs.
The second owner was proactive and managed his business, instead of his business managing him. He had calculated his gross margin per brick. Based upon his daily labor costs, he calculated how many bricks his crew needed to lay so he hit his profit target.
Results: Which brick company do you think was more successful? If you guessed XYZ, you are correct.
The one with the most accurate, timely information usually wins.
Takeaway:
- Manage your business instead of letting your business manage you.
- Be proactive and let your team know what is expected of them on a daily and weekly basis.
- Gross Margin: Calculate your gross margin per unit of production, by each type of unit. This may surprise you. (By the way, I did this recently for a fabrication company. The results were alarmingly different than what the owner and managers previously believed.)
- Breakeven point: Calculate how many units you need to produce each day given your capacity to hit your profit goals.
- Execute. Daily.
If you are profitable on a daily basis, then you will be profitable on a monthly basis.