Recognized Supplier Guide ‘18

For the Business of Apparel Decorating

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14 || P RI N T W E A R O C T O B E R 2 01 8 • One data point falls outside the control li mits • Six or more consecutive points steadily increase or decrease • Eight or more consecutive points fall on the sa me side of the centerline • 14 points or more alternate up and do wn The business o wner in our exa mple would be wise to consider another price increase very soon or nd other ways to reduce Cost of Goods Sold i m mediately to raise the gross margin. If the status quo is maintained, predictably, next quarter's gross margin percent- age could dip belo w 54 percent and result in ve consecutive data points steadily decreasing. H O W M U C H DI A G N O SI S I S E N O U G H? One critical measure ment is insuf cient to deter mine the health and well being of your business. Depending on only one indicator would be like a doctor prescribing medical treat ment solely based on the results of your blood-pressure readings —or worse, a single blood-pressure reading. Certainly, you would consider that practice irresponsible, even cri minal. But ho w many critical nu mbers should a business o wner analyze? And which ones are best for a particular co mpany? The method - ology explained above can be applied to any business process that can be measured in quanti able ter ms. Let's say you thought getting a handle on measuring and i mproving custo mer satisfaction was a desirable goal for your shop. Ho w could you quantify custo mer sat- isfaction, though, without incurring expensive market research and independent-consultant fees? You could easily record and analyze the nu mber of written or tele- phone co mplaints you receive each week. You might also count the nu mber of "thank you" calls and notes, and unsolicited testi monial letters you receive in a month. Or you could include a short custo mer survey on the botto m of the invoice or on a postage-paid card. Have custo mers rate the quality of service they received, overall delight, or convenience in shopping with your co mpany. Include a section for written co m ments as well. Heck, do all of the above si multaneously. The i mportant thing is to select a good cross-section of things to measure that will paint the entire picture of your co mpany's health. T H E RI G H T MI X O F DI A G N O S E S There are literally thousands of measure ments you can take but, of course, each one requires ti me and resources to collect, tabulate, and study. I believe in selecting no more than four to six critical nu mbers —aka key perfor mance indicators ( KPIs) —at one ti me. Select quanti able criterion fro m every key business function in your co mpany. Here are so me suggestions for possible measure ments, separated by depart ment: Sales • Gross margin • Monthly pro t dollars (by sales rep or product line) • Nu mber of orders and average dollar a mount per order • Nu mber (and value) of active prospects in the sales pipeline • Sales attrition percentage each month over a rolling 24- month period • Nu mber of ne w accounts by month (and percent of total rev - enue fro m ne w clients) Production • Daily upti me on equip ment • Pro t dollars generated per hour for each piece of equip ment • Maintenance and do wnti me costs • Percent (and value) of production waste, mistakes Finance • Days Sales Outstanding (dollar a mount of Accounts Receiv - able divided by Average Daily Sales) • Days Inventory Outstanding (the nu mber of days it takes for a co mpany to "turn" its inventory) • Current Ratio ( Current Assets divided by Current Liabilities) • Cash Conversion Cycle (the length of ti me to earn back a dol - lar in pro t after spending a dollar. It is calculated by adding the Days Inventory Outstanding, the Days Sales Outstand- ing, then subtracting the Days Payables Outstanding —the nu mber of days a business holds onto its cash after purchasing so mething) Ad ministration • Revenue (or pro t) dollars per e mployee • Return-on-invest ment fro m capital expenditures • Return-on-invest ment fro m pro motions and advertising • Net worth (or average stock value) A FI N AL T H O U G H T All the diagnosis in the world will not take the place of s mart fore - casting and budgeting. You should take every year-end Pro t and Loss State ment available to you and add a ne w colu mn to the right of each line ite m. That ne w colu mn should contain the percent- of-gross-sales calculation. Gross margin is already in the "percent of sales" for mat. Do this for every major line ite m on your P &L. Study what those percentages have done in years past. Find your advertising cost as a percent of total revenues. Do the sa me for postage and delivery, travel and entertain ment, of ce sup- plies, and so on. When you are ready to create your 2019 budget and set a revenue goal for the year, you will have a better idea of ho w much you should plan to spend at a mini mu m, can afford to spend, and a li mit on the most you should spend on each line ite m. Good luck! Y O U R P E R S O N AL B USI NESS T R AI N E R

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