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Is BOB a friend of yours? | Business Fundamentals

Following are some thoughts on a pet topic of mine; Business Fundamentals. In my opinion, there are very few totally incompetent managers existing in successful organisations today. Most are highly qualified, hard-working individuals with good intent.

That said, I regularly meet individuals that can’t immediately tell me the current results of their critical ratios. Occasionally I meet managers that can’t even identify their critical ratios; their Business Fundamentals. I’m referring here to using a simple method of measuring the essentials; a dashboard of decisive gauges that determine (in real-time) actual performance.

Yet as logical as that is, far too many managers are unable to quote such detail. These business fundamentals are crucial yet sometimes managers are not on top of them; in fact, they’re a fair way down the mountain. Is it that they ‘can’t see the forest for the trees’ or have they ‘taken their eyes off the ball’?

These are two old sayings that have relevant consideration in organisations today.

If someone can’t see the forest for its trees, they are too focused on specific details to see the picture as a whole. Depending on their behavioural profile certain managers can become laser-like focused on a task or project and ignore or become casual about the business fundamentals. I know this to be true because previously it happened too often to me.

Alternatively, if someone takes their eye off the ball, they don’t concentrate on something important that they should be looking at. This is often the case when external or hierarchal pressures necessitate extensive time and attention. This can be a formidable business fundamentals opponent.

Either of the above examples can be detrimental or even potentially devastating for organisations; irrespective of the unintentionalness (I know that the word doesn’t exist but it should) of such behaviour. In terms of priorities few, if any, compare with what I call BOB, Business Of (the) Business. These are the key business fundamentals that reflect an organisation’s health and performance.

Hear me right on this. I’m not wanting to be unreasonably critical. I fully understand the sometimes overwhelming competing pressures that managers face today. I just want to remind people to never ignore the key business fundamentals; BOB ratios that steer them through their days.

Let’s look at an example of some business fundamentals, some BOBs. Say you are a manager in the retail sector (currently a sector needing all the help it can get). What ratio (BOB) gauges would you have on your dashboard? What key business fundamentals do you want to look at daily?

Business Fundamentals: Essential Measures

If you are a competent manager, you are presumably using certain daily measures.

Here are some business fundamental (BOB) ratios that you probably already use;

  • Door counter numbers to transactions; the number of potential customers to the total number of transactions. A simple reality check. Are the marketing strategies working? (advertising, promotions, social media, etc.) Is inquiry producing sales?
  • Door counter numbers to revenue; the number of potential customers to the total value of sales for a given period (daily, weekly, monthly, or seasonally). This is a key sales performance indicator.
  • Door counter numbers to on-floor staff; used to identify service demands (roster planning). Critical to meeting customer service levels and achieving net profit targets.
  • Transactions to square metres; a measure of location performance and merchandising effectiveness impacting net profit targets.
  • Transactions to stock levels; a measure of stock control and capital requirements.
  • Sales staff profitability; a measure of gross profit per hours worked.

I’ll stop there. The above is of course in no way an exhaustive list. The type and precise ratios you use will need to be entity-specific. However certain BOBs (ratios) are of paramount importance to business fundamentals.

Take the last measure of the above list; Sales staff profitability, an icon of business fundamentals. This is a critical measure of individual performance. It’s not necessarily a transaction count. It often reflects the ability of an individual to cross-sell, up-sell or value add which results in an increased profit per hour factor. It truly is a key business fundamental indicator essential to management.

Say a sales employee costs you $25.00 per hour including compulsory add on costs. Then add your total operational (fixed) costs of say $7.00 per hour per sales staff member. If the average profit per hour per sales staff member is less than $35.00 then you are in the danger zone. This example substantiates the use of BOBs – key ratios of business fundamentals.

The majority of the above business fundamental ratios are of limited value unless you have comparables available. There are many comparison options open to you, including;

  • Local, State or National commerce associations
  • Industry associations
  • Franchisors
  • Bureau of Statistics
  • Research entities

Russell’s Tip: The real key here is to remember that BOB is your mate; that certain business fundamental ratios are there for your benefit. They are your daily health check.

As always, if you need any assistance in this area of business fundamentals or would like to discuss specific BOBs, please contact me.

Question: Do you have a good BOB story? If so, please share it with us.

If you have any questions, feel free to contact me. Alternatively, I always appreciate constructive comments on review management.

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