The Importance of “what gets measured, gets managed”, and how it can improve your profitability
Peter Drucker once famously quoted, “(only) what gets measured, gets managed”. This quote suggests that when you actively track and measure a particular metric or aspect of a business, you are more likely to take actions that improve it.
Here are some common scenarios our clients have encountered that back-up this claim:
Margins
Scenario: A small business begins measuring its profit margins on each product line, breaking down costs such as materials, labour, and overhead.
Outcome: The business realises that certain products have significantly lower margins than others. By focusing on these metrics, the company either raises prices on low-margin products or reduces production costs, thereby improving overall profitability.
Budget Management
Scenario: A company decides to start tracking its monthly expenses more closely by implementing a detailed budget with categories like marketing, operations, and salaries.
Outcome: By measuring expenses regularly, the company identifies areas where it is overspending, and makes adjustments to reduce costs. Over time, this leads to better cash flow management and increased profitability.
Debtors Turnover
Scenario: A company begins to measure its accounts receivable turnover ratio, which tracks how quickly customers are paying their invoices.
Outcome: By focusing on this metric, the company identifies slow-paying customers and introduces stricter credit terms. This results in faster payments, improved cash flow, and reduced bad debt.
If you would like assistance with better measuring your financial metrics to ensure you are managing your business effectively, get in contact with on our Business Intel experts at R+M!
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