CFO Using KPIs to Grow Profit &
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Using KPIs t o Grow Prof it and Cash If you want to overcome small business growth challenges you need to know what your targets are to ensure you achieve improved profit as well as sales growth If you want to sell or exit your business those doing due diligence will want to see numbers to substantiate a price borrowings etc They will want to see that business financial controls are in place To do all this you need to set your business Key Performance Indicators KPIs but knowing which ones are relevant can be tricky This is where our eBook can help We refer to a typical service maintenance type of business in our example in this eBook 1 1 Copyr igh t CFOon Call com au by CAD Par t n er s Pt y Lt d www CFOonCall com au
BUSINESS DRIVERS Businesses typically have Base short term goals of profit and cash and Long term goals of increasing business value through Ongoing profit generation Expansion of core business Adding other businesses Other investments property other businesses etc The Drivers of Business Prof it Cash Fl ow Think about the key results which you should pursue in your business starting with Sales the cornerstone of any business Labour costs a key area where you can blow your profits Equipment parts costs any room for improvement Overhead costs keep the costs down and see the impact on pricing jobs Cash flow the life blood of any business 1 2 Copyr igh t CFOon Call com au by CAD Par t n er s Pt y Lt d www CFOonCall com au
MARKETING AND SALES What are some of the objectives in Marketing Sales Strategically you may want to think about Target Market s Commercial Government Residential Maintenance Service Electrical Diversif icat ion of cust omers Mix of residential commercial too much reliance on one sector Customer concentration too much reliance on a small number of customers Geographic diversification grow your reputation 1 3 Copyr igh t CFOon Call com au by CAD Par t n er s Pt y Lt d www CFOonCall com au
Marketing Sales KPIs must be linked to individuals responsible for achieving sales In most organisations marketing processes and tactics are tailored to company goals and facilitate the generation of leads The main KPI s are Number of leads generated may be by person or marketing campaign Google AdWords trade shows etc Sales conversions per salesperson Customer retention Sales per marketing spend Sales per advertising send Number of new customers acquired Sales analysis by customer Classify customers as A B C to focus attention on key customers Sales by customer group Profitability by customer Profitability by customer group Number of major client visits scheduled 1 4 Copyr igh t CFOon Call com au by CAD Par t n er s Pt y Lt d www CFOonCall com au
Pract ical Impl icat ions Market ing Sal es A good CRM system required to track customers leads opportunities trade show activities email marketing etc These systems produce valuable statistics and KPI s Marketing strategy must be formulated and linked to sales objectives and regularly reviewed to maximise returns from marketing including advertising Sales meetings must be held to utilise marketing and sales KPI s and ensure sales staff are clear on goals targets KPI s and strategy Where a company is large the need for planning and co ordination is even more important due to the number of staff involved INSTALLATION Too often you see business owners and sales staff who are frustrated that the installation department messes up on the job quality and cost wise Inst al l at ion Object ives On time customer satisfied their business is not held up Minimum no defects satisfied customer No WHS issues satisfied customer no loss in productivity Product met with customer requirements On budget or better we re here to make money There are a number of inputs in this objective of achieving profitability Customer satisfaction 1 5 Copyr igh t CFOon Call com au by CAD Par t n er s Pt y Lt d www CFOonCall com au
Inst al l at ion Drivers Sales hand over proper briefing Proper planning Proper project management Adequate resourcing Adequately trained staff Proper briefing of staff on a project daily weekly Adequate supervision of staff Quality audits Reliable suppliers Reliable products No of jobs missing deadline Jobs completed on time jobs with defects Number of defect jobs Number of hours spent fixing defects Cost of jobs running over budget Cost of jobs running past benchmark Gross Profit Customer satisfaction requires a customer survey or simply ask Personal Productivity Rate Overall jobs Gross Profit vs target or benchmark Labour hours vs budget for each job Lost time injury hours Number of scheduled toolbox meetings Number of training hours Number of QA process defects 1 6 Copyr igh t CFOon Call com au by CAD Par t n er s Pt y Lt d www CFOonCall com au
Pract ical Impl icat ions Small companies can get by tracking projects with MYOB However any company of size needs to have software capable of tracking project hours and costs In addition there needs to be a breakdown between materials labour and other costs Strong project management capability is essential because hard won sales with competitive profit margins are capable of being delivered at better margins than originally costed for especially with good labour management Examples of Software are Simpro TSM TidyBuild Wennsoft Technisof Greentree Simply Google project or job management software to find systems 1 7 Copyr igh t CFOon Call com au by CAD Par t n er s Pt y Lt d www CFOonCall com au
Maint enance Service Object ives Diversification Having a maintenance and service department has benefits Less reliance on capital expenditure by clients Income stream when clients are not buying Generates project work where old equipment needs replacing Flow Through maintenance contracts generate service work Minimum no defects satisfied customer No WHS issues satisfied customer no loss in productivity Services met with customer requirements On budget or better again we re here to make money There are a number of inputs in this objective of achieving profitability St rat egic Issues t o consider Target markets Property Managers Facilities Managers Government Residential etc Growth Diversification Mix of residential and commercial Customer concentration Geographic Resource requirements Training 1 8 Copyr igh t CFOon Call com au by CAD Par t n er s Pt y Lt d www CFOonCall com au
Maint enance Service Drivers Sales hand over proper briefing Proper planning of maintenance contracts Proper service management Adequate resourcing Adequately trained staff Proper briefing of staff on a job including site safety Adequate supervision of staff Quality audits Reliable suppliers Reliable parts Parts prices Economies of scale Maint enance Service KPIs Number of jobs missing deadline Jobs completed on time jobs with defects Number of hours spent fixing defects Cost of jobs running over budget Cost of jobs running past benchmark Gross Profit Customer satisfaction requires a customer survey or simply ask Overall jobs Gross Profit vs target or benchmark Labour hours vs budget for each job Lost time injury hours Number of scheduled toolbox meetings Number of training hours Number of QA process defects Value of project service work generated per maintenance client Labour productivity Service hours should be 100 billable 1 9 Copyr igh t CFOon Call com au by CAD Par t n er s Pt y Lt d www CFOonCall com au
Pract ical Impl icat ions The company must have a system capable of tracking job revenue costs broken down at least by labour and parts and profit Labour hours must be tracked by job and by techie to enable management of productivity The system must be able to track costs incurred and billings on maintenance jobs on a contract to date basis Bringing it al l t oget her Business KPI s Business exists to make profits preferably above benchmarks Note that business KPI s tend to be rear vision historic mirror measures As discussed earlier these KPI s are useful more for strategic and generally medium to long term planning Exampl e of usage of KPI s incl ude Capital expenditure decisions Staff hiring decisions Negotiations with suppliers and subcontractors Which brands to sell Opening branches to service major customers 1 10 Copyr igh t CFOon Call com au by CAD Par t n er s Pt y Lt d www CFOonCall com au
Business KPI s incl ude Company sales and profit and related percentages Division sales and profit and related percentages Company Gross Profit Company Overhead Division branch Gross Profit Productive wages as revenue Overtime hours and Materials as revenue Breakeven point Number of days sales of stock on hand keep stock holdings down Number of days customers take to pay vital for cash flow management Number of days taken to pay suppliers Benchmarks with industry for all the KPI s above Peopl e Process Opt imise Synchronise On the next page we see that business is a combination of the staff in the business working with best practice processes It is quite possible to achieve certain KPI s discussed in this workshop and yet lose money in the process by overspending on labour costs e g On time deliveries Zero defects Happy customers 1 11 Copyr igh t CFOon Call com au by CAD Par t n er s Pt y Lt d www CFOonCall com au
These scorecards wil l incl ude KPI s f or Financial KPI s profit for owners and shareholders Customers satisfaction retention etc Internal processes defects service quality complaints Learning the ability of staff and teams to learn and improve staff satisfaction 1 12 Copyr igh t CFOon Call com au by CAD Par t n er s Pt y Lt d www CFOonCall com au
HR and Change Management Strategies for getting staff alignment with company goals include Develop company Vision Mission and Core Values Core values should include customer focus importance of staff and respect for others An organisation chart is a must so that staff can see how they fit in relative to servicing customers Each staff member has a Job Description complete with individual KPI s and where appropriate a development training program This document can be signed off by the staff member and their manager Organisations need to constantly evolve to meet customer requirements and stay competitive and KPI s are useful measures and goal setting tools in the process Having team and staff meetings on a regular basis is a key strategy in engaging staff and getting their participation in the constant process of change experienced in companies 1 13 Copyr igh t CFOon Call com au by CAD Par t n er s Pt y Lt d www CFOonCall com au
The Learning Cycl e revisit ed evol ut ion of KPI s A key part of the Learning Cycle is the collection or calculation of KPI s and these are used to evaluate how well a company is going in its processes and projects It is very useful to adopt this principle with your staff in the key drivers of your business Using this in conjunction with QA is also recommended KPI s need to be reviewed as time goes by because business goals and strategies change Some KPI s may need to be modified or become obsolete and new KPI s developed The continual review and use of KPI s in conjunction with business goals results in continuous improvement and these benefits result in an efficient profitable company SUMMARY Businesses have varying objectives and strategies Tailor KPI s to your company s goals and focus on the key drivers The top manager must work closely with their staff to develop and use KPI s For a no obligation chat about your KPIs call us on Aus 1300 36 24 36 NZ 0800 180 400 1 14 Copyr igh t CFOon Call com au by CAD Par t n er s Pt y Lt d www CFOonCall com au
