Developing the Business Snapshot Part 2
In the last episode we talked about a weekly or monthly snapshot and how to get started with one driver – which is probably revenue. Today we are going to cover options for adding 1 or 2 more drivers to that snapshot. Before we get started, I want you to keep this in mind: you can clog up a snapshot with all kinds of measures and metrics to the point that it becomes less useful. The whole point of a snapshot is that it has quick, digestible insights that can be reviewed in under 15 minutes. The results might generate questions that need more data but the snapshot itself needs to be short and sweet.
That’s something to keep in mind as you select the items for the snapshot in addition to the 3 requirements I noted in the last episode.
Now…let’s get into the menu of options for other items you will want to consider for the snapshot. I am going to start with ones that can apply to any type of business. The details will vary by business type – service vs product – but the general categories are the same.
All businesses should balance their snapshot between revenue and key costs. It is super easy to get over-focused on either one so we want to make sure there is some sort of balance. We also want to make sure that we are leveraging the data being collected so you can use it in multiple ways. In just a minute, I will go over the key areas we look at in designing client snapshots at both Peek Advisory and at The CFO School.
As you listen to this list, think about how easy it is to get to the data for these. Think about what you can reasonably get each week vs each month. Some expenses are only available once a month or every other week. Don’t overly worry about that but do keep it in mind. The snapshot should not only be easy to read but also relatively simple to pull together. You can ALWAYS make something more complicated later! Here we go…
Types of revenue. This is one step down from the revenue view covered before. It can be by customer or by project/service/product. We are looking to gain insight into what is performing well and what isn’t. This can be particularly useful if there is specific promotion going on.
Key expenses. These are often business dependent but here are the ones we see the most
Labor costs. For any business that has employees or contractors, labor costs are a big one to review consistently. It can be challenging to tie them specifically to revenue and they are often one of the biggest cost categories so it’s important to understand and review them frequently.
Marketing/advertising. This can be online ads like Google or Facebook. It can also be PR costs, product placement, magazine ads and the like. These costs can also be lumpy and come in waves.
Tech costs. No matter what type of business you have, tech costs can be a thing. They can be a big thing or a small one. It won’t be a key driver for all businesses – and they may not be that much in terms of overall expenses.
Facilities costs. This means rent, utilities, cleaning, security and all the things that go with having a physical space.
Insurance. May not be a key driver as much as a big expense (again depending on the business). It’s usually pretty fixed and is just a cost of doing business. There’s not too many decisions to be made here.
Counting metrics. This one is not completely financial but has a loop back to financials and can be a great basis for calculations that help add context to the flat out $ ones listed above. These are things like # of products sold, # of online store visitors, # of online store buyers, # of repeat customers or total hours worked by employees and/or contractors.
This list isn’t every possible option – and that wasn’t the point. These are the MAJOR areas and these are the ones that move the business forward (or backward) every time. It is super tempting to focus on the smaller things that seem easier to control – like that cell phone bill or getting a better rate on the trash service but it likely doesn’t change things dramatically. Frankly you could eliminate those costs altogether and not make a huge impact in most businesses. A weekly snapshot calls for focus and business metric essentialism.
So much to consider, right? Let’s walk through a couple of examples that we have inside The CFO School trainings.
Example 1: Professional services with contractors
Here are the business basics:
Retainer and project revenue streams
3 employees and periodic contractors for projects – paid weekly
Virtual offices
Annual software subscriptions to expert databases and annual certification renewals
Ongoing training
The snapshot we designed for this company is done at the beginning of each month and then tracked weekly. We know what the expected revenue is based on monthly retainers and the projects slated to be completed in the month. If any new clients are added, they get included in the next week’s view. In addition, total payroll for both employees and contractors is reported. As we go through the month, we measure expected net profit against the average net profit from the prior month. We could do this against last quarter or last year as well but have found this to be the most applicable.
Seriously. That’s it. I will say that one trap that is unbelievably easy to fall into for this types of clients is thinking that everything is so routine that you don’t need to do a weekly review. Don’t be fooled – and don’t let your clients be fooled either. Businesses that have ongoing and fairly set costs need to manage their revenue snapshot as much and sometimes more than businesses that have more things going on. The swings in this type of business can be extreme. Lose one or two retainers or have a project get extended and suddenly it’s a crisis. The snapshot can help identify that earlier.
Example 2: Product and service business with employees
Business basics for this client…
One brick and mortar location with 5 rooms providing aesthetician services
Product sales primarily as upsells after treatment. All products are bought from distributors at wholesale prices so none are manufactured by the client
All personnel are employees and are paid weekly
Rent and related location costs are paid monthly
The business is NOT in a tourist-heavy location but does have some cycles based on seasons and holidays
The snapshot for this company evolved over time and we ended up with a weekly snapshot that included revenue split between product sales and services, # of customers (in total only), payroll costs and # of hours worked. That’s 4 things track – the first 2 came from one report in the point of sale system and the second two came from one payroll report. From there we calculated average revenue per customer and average payroll cost per hour. On a monthly basis, we looked at the trend of these 2 metrics between weeks in the month and compared the monthly average to the past month and to the same month in the prior year. Each month, we also looked at the trend in product vs service revenue.
Because this business is primarily service, we didn’t include product profit margin in the snapshot. However, because we are looking at the mix of revenue, we can easily decide when it makes sense to add that in. We can also monitor the product gross profit in the monthly financials as a way to see when we need to pay more attention.
The key thing with both of these examples is we took a step back and looked at the business first. We talked to the business owner and got their sense of what they keep a pulse on. That matters a lot. Designing a snapshot that is 100% applicable but doesn’t consider your client’s view will be frustrating for you and them.
This was probably our most tactical episode to date. Relisten all you want – and be sure to take advantage of our other resources at powerofprofitability.com
Talk again soon!
How can you use this example with your clients (or maybe in your own business)? Grab our Profit Leaks checklist below. It’s free and will get you into action immediately.
