Service

Key Performance Indicators for Service-Based Businesses Part 3

 

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As accountants, we’re used to thinking in terms of quantifying successes rather than qualifying them. We like numbers, that’s why we got into this gig. But business owners get into business because they have great ideas, game-changing products or much-needed expertise to offer.

To help you out, we’ve created a three-part series on the numbers you need to be aware of. Undertaking an inventory of key performance indicators (KPIs) is an important step in truly assessing your company’s financial strength and sustainability. Moreover, those metrics become a roadmap for growth, help to define your goals, and can illuminate better strategies to reach the next levels of growth. While some of these percentages may seem familiar at first glance, other KPIs may benefit from your accounting team’s insight.

For product-based companies:

For businesses that are product-based, there are particular data points that can reflect the company’s health. Are your costs and revenue at odds? Is your brick and mortar shop outperforming your web orders? Is inventory shipping efficiently? By double-checking these KPIs, product-based businesses should have a better idea of where they stand and what to tweak for optimal outcomes.

Companies that are product-based may have more predictable supply and demand time periods, but a single error can throw a wrench into financials months down the road. Keeping a close eye on costs and variables can make recovering from mistakes bearable, but more importantly, an engaged owner and accounting team can pinpoint slices of the company’s financials that are worth a second look for growth.

KPIs for product-based businesses:

Sales by Channel (i.e. Wholesale vs Retail vs Distributor OR Online vs. In Store): Assigning revenues to particular channels to see differing income performance

Product Lines as % of Sales: Dividing sales among product lines to see differing income performance

Gross Profit % by Location or Product Line: Revenue minus the cost of goods sold, sorted by locations or product lines to see differing income performance

Freight and Delivery as % of Revenue: The cost of freight and delivery in relation to the total revenue

Full Price vs Discount %: The percent of sales that were at full price versus those discounted.

Inventory Turnover: The measurement of how often inventory is sold and replaced

Average Inventory Cost: The cost of inventory that the company has on hand at the end of a particular time period, averaged over time (for example, monthly costs averaged over a quarter)

Average Inventory Retail: The retail value of inventory that the company has on hand at the end of a particular time period, averaged over time (for example, monthly values averaged over a quarter)

Accountfully has worked with companies of all types to identify pain points and thoughtfully re-orient companies on better paths to success. Giving business owners the resources to track existing KPIs is critical to the success of businesses large and small—and the economic eco-system surrounding them. With data in hand, you can make decisions on attainable objectives that represent success and sustainable growth.

Looking to learn more about KPIs, download our KPI guide today.

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