Business by the Dashboard Light
I’ve never met anyone in business who’s only in it to make a buck. Every store owner I know has a grand plan that takes them beyond the initial opening of their store and a positive end-of-year profit-and-loss statement. They have a calling to be a community leader, they want to keep indie bookstores alive, they want to teach every willing child how to knit, they want to work half the year and vacation the other half. More than the bottom line gets them up in the morning and gives them the fortitude to get through each day.
A roadmap to success
All business owners have dreams, but not all of us know where we are in our grand plan to get there. A business plan may have been created at one point and then shoved in the file cabinet, never to be looked at again. I know, because that’s where my first business plan is. These works of art are so filled with projections, they’re like the business version of fantasy football: If everything goes perfectly, this is what we can accomplish. Does anything ever go perfectly? No.
Since nothing will ever go perfectly in your plan, how do you manifest your big dream? How do you take your idea and lay out a map with benchmarks and measures that tell you whether the direction you’re heading will get you where you want to go? You create a dashboard for your business.
Just like your car’s dashboard tells you the status of your car with clear instruments readings, a business dashboard tells the tale of your business quickly and easily.
A business dashboard is a simple chart of collected information you can track continually or periodically that communicates the current status of your business and where your business is trending. It measures the financial picture of your company, the success of your marketing efforts, the status of your inventory, and trends in your social media efforts. It helps you identify the information you need to weather a crisis and grow your company. In other words, it tells you if you have enough gas (resources) to get where you want to go and how long it will take to get there.
At the very least, you’ll want your dashboard to tell you whether you made money this week, month, and quarter, and whether you’ll be able to make it another season. Add in the tracking of your costs, sales, and customer response, and you now have important gauges (business markers) on your dashboard. How fast are you going? Do you have enough gas in the tank? Will you burn out along the way? Most of us just guess at the answers to these questions about our businesses and are surprised when we run low on resources and a crisis happens.
Get better mileage out of your business
To create business growth, to create the big vision for your store, you have to start with a change in your behavior. You need to work on your business first and in your business second. This may seem counterintuitive, considering many retailers are the “everything” of their store: bookkeeper, marketer, manager, clerk, and toilet cleaner. Working on your business unfolds in stages as you grow. You’ll plan, implement, and measure your goals to check your trajectory along your path. But, unless you plan and measure what you’re implementing, you won’t be able to grow in a sustainable and repeatable way. You’ll want to know why you had that great month in sales; otherwise, how will you be able to repeat it?
Every business development book I’ve read, every class I’ve taken, every successful business owner I know talks about what tools measure where your business is at any moment. These “Key Performance Indicators” (KPIs) in a scorecard or a dashboard quickly tell you how your business is trending. As independent business owners, we need to know on the fly how we’re doing today, where we’re going tomorrow, and what we did yesterday that got us here. We try to keep that information in our heads, but the simple fact is the longer you’re in business, the more things you need to remember. Trying to remember everything can create a crisis with every decision.
To grow, you need to prep for that growth, track its progress, and make educated decisions along the way. Want to take more personal time for yourself? You will need employees who can manage critical parts of your business. To stay out of the micromanagement trap, you need tools that quickly show whether your employees are productive and accountable.
Dashboards can set you free from worry and the need to micromanage everyone and everything. With a dashboard you can catch mistakes before they become critical, keep in touch with all the key processes, reference historical data without having to recreate the past, get clarity on how your instructions are being received, and be supported by your staff in more productive ways.
Dashboard nuts and bolts
Creating your dashboard is a dynamic process. Your dashboard will change over time, so don’t worry about getting it perfect the first time out. Ideally, your dashboard will have about 10 KPIs that tell the tale of your business or project health. Comparing the ideal and actual numbers of your performance indicators will help you make quick and proactive decisions.
A good dashboard is simple and communicates clearly, filled with useful data, visually appealing and responsive, and easy to maintain. Keeping it simple is important. Too many numbers will overwhelm your brain, and when that starts to happen, you stop processing what you’re seeing.
The key is to create a quick look at your KPIs; if they are out of alignment, dig deeper. That excavation will be easier because everything is in place for your dashboard to give you a tight focus on what you need to know.
Start your engines
With a piece of paper, a pen, and a few numbers already at your fingertips (see the sidebar for ideas), you can start your own dashboard in a few minutes. It won’t be perfect, but it will help you get a clearer picture of how best to direct your efforts. When we initially did this at Coventry, we discovered we were too low in our inventory for the next month’s projected sales. We quickly discovered through trial and error what our ideal start-of-month inventory level should be, allowing us to plan our production, supplies, and labor costs more efficiently. So, let’s get started!
Step 1: Identify key metrics (the numbers that keep you in business)
Revenue: How much money do you need to bring in each week to cover your overhead and re-stock the inventory you sold? If you have different types of revenue, say, services and retail, what is the ideal balance?
I was surprised that my small retail store needed so little to sustain it. When we created our dashboard, we realized how quickly we reached our minimum sales goals. We were then able to target a new revenue stream of services and nurture it without losing sight of our day-to-day sales.
Revenue drivers: Do you need a certain level of staffing to ensure quality customer service? Do you rely on repeat business or the average size of sales? Do you need to maintain a specific amount of foot traffic?
My business neighbor has two distinct revenue drivers: service and retail. She knows she has to have at least two service providers on hand to create the revenue required for the foot traffic she gets. When foot traffic falls below a certain level, it’s time to amp up the advertising campaign.
Variable expenses: You may be turning over product at such a rate that you have to make sure you’re ordering the perfect amount of inventory to maintain your sales. The top 20 percent of your product mix may be 80 percent of your sales, and you want to make sure those items are in stock.
At Coventry, we can never run out of wax. Our number one KPI to keep business rolling is how much wax we have on hand. Without wax we are no longer a candle maker!
Red flags: We all have warning signs or red flags for our business, our canaries in the coal mine so to speak, that signal a trend we need to sit up and pay attention to. It may be that your foot traffic or repeat business is down, or maybe your average sale or inventory levels are below minimum. Identify the numbers failure that can sink your business. You want to know at what warning level you have enough time to course correct and resolve your do-or-die issue.
Sales revenue is an easy red flag to track: You know by Wednesday if you will make your numbers by Friday or Saturday. If you’re low in sales, you know to up your social media campaign and spend more time on networking.
Marketing results: What efforts are you putting in and what are the results? Even if you’re doing free marketing, your time is money—make sure you’re investing it the right way.
Tracking the response to my articles, blogs, and social media posts has helped me focus my effort on what’s working. I realized my customers respond to information about my products more favorably than when I write about other subjects I thought supported my products. Whew, that cut out half my writing time. I love avoiding lost effort!
Step 2: Set a baseline for comparison
When you know what’s ideal for your key metrics, it’s like a speed limit sign on the road: You know how fast you need to go to get where you’re heading—and hopefully you’re heading in the best direction to achieve your goals! This baseline is the first step to creating a budget.
Your baseline may change, depending on the time of year, a change in strategy, and the financial climate. Visit your baseline goals every quarter to ensure they are correct for your current journey. You may see variation in:
Revenue goals: Seasonal trends, shopping trends, etc. Look at your historical sales data and give each month an expected percentage of the overall year’s sales.
Expenses: With the seasonality of your retail business, there will be times when product expenses will be very high. Or, there may be times when you only need a core staff, so your labor numbers will be small.
To find these numbers, use past experience or industry-standard numbers, or work backwards from your goal. For instance, if October is your big sales month and August is your slowest month, you may want to gauge when it makes sense for your product expenses to be higher in order to ensure October is the success you need it to be.
Step 3: Track key metrics
What good is all this information if you never use it? Assemble these numbers in a simple spreadsheet you review every week. If you only review your dashboard monthly, you can miss many opportunities to course correct for a better month or to plan ahead for next month.
Keep these numbers simple and set aside an hour every week to review them with your key staff, even if that’s just you and your sales clerk. This weekly date keeps you accountable for paying attention and regularly reviewing your store’s numbers. Also, when you bring staff into the process, you create opportunities for more information and new ideas.
Remember to recognize your wins along the way and celebrate them with everyone. I have witnessed businesses that even put their sales goals up for customers to see. They then watched their loyal customers increase their orders just to be a part of the celebration. The staff, in turn, celebrated each customer, creating more fun for everyone!
Keeping your dashboard simple will ensure you actually use it. Once you think you have simplified your dashboard as much as possible, cut down the KPIs one more time. Delegate some of the numbers to your staff to keep them engaged in your store’s success. What gets measured grows; what gets measured by your staff gets extra attention.
Perfection is not your goal with your dashboard, information is. What you decide to measure will change. What you think you need to see may be replaced quickly by what actually drives your business. By looking for and weighing this information, you will uncover what is most important for keeping your business running smoothly on the road to success.
10 KPIs for Retailers
You could include countless measures on your dashboard. Here are a few specifically focused on retail:
- Average items per sale: # of items sold ÷ # of sales transactions
- Average sale: net sales ÷ # of sales transactions
- Average sales per employee: net sales ÷ # of employees
- Average sales per hour: net sales ÷ # of selling hours
- Average sales per linear foot: net sales ÷ linear feet of shelving
- Average sales per square foot: net sales ÷ square feet of selling space
- Conversion rate: # of sales transactions ÷ # of visitors to the store
- Gross profit margin: (net sales - cost of goods sold) ÷ net sales
- Inventory turnover: cost of goods sold ÷ average inventory at cost
- Wage to sales ratio: employee's hourly wage ÷ their hourly sales
More Great Resources
For more information on creating a business dashboard, check out these books:
Simple Numbers: Straight Talk, Big Profits! 4 Keys to Unlock Your Business Potential by Greg Crabtree
Traction: Get a Grip on Your Business by Gino Wickman
Balanced Scorecards and Operational Dashboards with Microsoft Excel by Ron Person
Business Intelligence for Dummies by Swain Scheps
First published in Vol. 27 No. 4 of Retailing Insight. © 2013 Continuity Publishing Inc. All rights reserved.