How Do You Measure Your Success?

When I hear some of the responses I get from dealers to this question I literally shake in my boots, because it can all too often spell disaster. I have heard it said “My business plan is simple - if I have cash in the bank then I’m successful.” This thinking could not be further from the truth. 

A more typical response I hear is, “I made a profit at the end of my fiscal year so I was successful.”  Well, beware of this kind of thinking to, because the road you took to make that profit and how you measured it can have a significant impact on your level of success. 

Another common response is, “If I am meeting my sales objectives each month I know I am successful, I just don’t know by how much until I receive my statements at the end of the year.”  Measuring the number of units you sell is not a formula for success and finding out at the end of the year whether you made a profit is too late.

Here’s how you should be measuring your success (and profitability!)

  1. First and foremost you have to establish a base line for success. This is done by comparing your results to industry standards for profitable dealers. If you made a profit of $50,000 for the fiscal year and that represented ½% of gross sales, then you have not been successful in my book. The potential for profitable dealers should be between 3% and 5% of gross sales. Your base line relies on the calculation of a number of ratios and percentages that measure expenses, volumes, margins, inventory turns and cash flow.  In other words, you need to measure all financial aspects of your business to establish your potential for success. Only measuring your success by the number of units you sell ignores all the other contributors to profit or loss.  You can exceed your sales targets by 20% and still have a loss if for example your salaries or margins are out of sync with industry standards.
  2. The second issue relates to timing. Running these calculations at the end of your fiscal year is too late. The story has already been written and you can’t change the ending. You must be reviewing these measurements based on your in-house financial statements every month.
  3. Third - and probably most important - is you must have a plan that reflects your goals and objectives and establishes your achievable targets for success. Your plan must also be broken down by month. This is not a budget but rather a comprehensive business plan that allows you to review your progress each month. The key to your success is measuring your monthly financial results against the plan for variances and making timely adjustments to stay on target. You may find, for example, that sales are not meeting your forecast so you may have to cut salaries to stay on target to meet your profit projection. The point is that no business plan is perfect out of the box, so you must be prepared to adjust throughout the year to the conditions your business presents.

Follow these three guidelines for measuring success and you will maximize your profit potential. If you need or want help defining your success and in writing your business plan, then please contact me for a free consultation. 

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