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Are You Measuring Your KPI's?
By Gauher Chaudhry

My background in business development has helped me understand the importance of measuring the results of any type of business, even a small Internet business.

I have learned that if you could measure the activity within your business, you could manage it more efficiently and profitably.

I cannot stress the importance of measuring the results of your business because it will lay the foundation for all the future decisions you will want to make.

Measuring your business properly will be the determining factor as to whether you will make a good decision or a bad decision.

Simply looking at a financial statement does not tell you enough about how a business can be improved. You have to consider the numbers that derive the financial statement to be able to understand what changes need to be made in order to increase the profitability of your business.

We all know that customers are the life-line of any sort of business. Customers affect three key components of the revenue model.

These key components are:

  1. The number of customers
  2. The transaction frequency
  3. The average value of each sale

If you take these three components and look at the following equation, you will see how it derives your revenue:

(Number of Advertisers) x (Transaction frequency) x (Average sale) = Total Revenue

By understanding this formula, you can predict how much revenue you will make.

For example, if you have in any given year, one hundred customers who purchase a product or service from you twenty times a year with an average sale of twenty-five dollars then:

100 x 20 x $25 = $50,000

You could easily predict that you would make $50,000 in revenue. If you did not make $50,000 you could easily refer to the above formula and understand why not:
bullet

Was it because you did not have 100 advertisers that year?

bullet

Was the transaction frequency less than twenty?

bullet

Or was the average sale less than $25?

By knowing which component of your revenue formula is not performing up to par, you can concentrate your efforts on that particular component to reach your profit target.

What would happen to our total revenue if we managed to tweak all the factors of our equation by a mere five percent:

105 x 21 x $26.25 = $57,881

In this example, you can increase your revenues by a whopping sixteen percent by just tweaking each factor by only five percent.

Remember, what ever you can measure, you can manage. Managing your business properly is one of the most important steps towards success in business.


Copyright 2002 by Gauher Chaudhry

Gauher Chaudhry is editor of Cool Cash Ezine. You can subscribe by sending an email to subscribe@freecoolcash.com with "sub-art" in the subject. Join Gauher's two-tier affiliate program by promoting his latest book "EZ Money With Ezines." Gauher teaches individuals how to make thousands of dollars in the ezine publishing business! http://www.ezmoneywithezines.com

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