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:
- The number of customers
- The transaction frequency
- 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:
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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