It is widely acknowledged that the Pareto principle, commonly referred to as the 80/20 rule, is applicable to almost every business. This principle states that roughly 20% of your customers contribute to 80% of your business, and similarly, 20% of your product or service range generates 80% of your income. The 80/20 principle is relevant to various aspects of your business, and it is crucial to identify the products, services, and customers that make a significant contribution to your profitability. By doing so, you can utilise this information to your advantage. For instance, the 80/20 rule helps you determine which customers to prioritise and which products are the foundation of your business. Consequently, you should focus your valuable time and effort on these areas.

Sales by-products provide valuable information on which products are selling the best and worst. If your efforts are concentrated on products that are difficult to sell, it may be necessary to reconsider your sales strategy. You could consider bundling them with fast-moving products, offering special deals, or discontinuing them from your product line entirely. Sales by salesperson can indicate the performance of your sales team, highlighting problematic areas such as training deficiencies or struggling salespeople. It is essential to establish targets for all sales personnel and conduct weekly meetings to understand why targets are not being met. Adopting a supportive approach, such as "what can we do to help you achieve targets," rather than a confrontational approach, such as "you need to perform better or face termination," is recommended in this area. Sales by day, week, and month will show the peaks and troughs in your business, aiding you in planning your marketing efforts to address these variations.

What are the margins on each of your products, and what is the overall sales figure per product? Is it possible that you are expending all of your energy on products that do not sell well and generate minimal margins? If so, it may be wise to eliminate such products from your product range. Instead, it is advisable to focus on the 20% of your clients who generate 80% of your business.

Cash flow represents the inflow and outflow of funds. It is recommended that a cash flow forecast be prepared for a minimum of three months, preferably twelve months in advance, and updated regularly, at least monthly and preferably weekly. By comparing actual inflows and outflows against the forecast, you can take action such as increasing marketing efforts, cutting costs, injecting finances, or notifying creditors of delayed payments before a potential shortfall occurs. This proactive approach reduces anxiety and improves the management of the situation.

What is the payment duration of your debtors? Programs such as MYOB can assist you in measuring this. Prolonged payment terms of up to 60 days by debtors can adversely affect your cash flow, and when multiple debtors adopt such practices, it may cause significant financial pressure. It is essential to establish a debtors collection system and policy that considers the payment processes and preferences of your customers and includes regular personalised communication.

What is your average inventory level, and how frequently does it move in a year? If your stock is stationary on shelves, it does not generate revenue for your business. Similarly, holding excessive inventory levels can adversely affect your cash flow. In instances where outdated stock remains unsold, selling such items at discounted prices is recommended to generate cash flow.

Similar to cash flow, it is advisable to create an annual budget for your business. A budget enables you to anticipate expenses and determine the required sales levels to generate the expected profit. Additionally, budgets for sales (sales targets), marketing, and purchasing should be established, with regular weekly and monthly monitoring. Monitoring these budgets facilitates early identification of areas of underperformance or overspending, allowing for timely corrective action to be taken before it develops into a significant issue.

Have you ever desired to understand your business's performance compared to your competitors? Valuable insights into your business's position in the marketplace and the measurements necessary to compete effectively can be obtained from Key Performance Indicators (KPIs) specific to your industry. Such KPIs are generally available through your accountant. Your accountant possesses the requisite expertise in these areas and can assist in the implementation and regular reporting of financial outcomes, as well as establishing and implementing systems and procedures necessary to facilitate their accurate measurement and reporting.

The conversion rate refers to the number of sales calls, visitors, or customers required to secure a sale. For instance, if an average of ten telephone calls results in one sale, the conversion rate is 1 in 10. It is recommended to use the aforementioned formula to calculate the conversion rate for sales conducted by phone. In the case of salespeople visiting clients, it is essential to measure the number of calls made to generate one sale. For those operating a retail store, it is necessary to determine the number of daily customers versus the number of sales. For example, if 100 customers visit your store and 20 sales are made per day, the conversion rate is 2 in 10. For those who receive telephone enquiries, it is important to measure the number of daily enquiries versus the number of sales generated from them. In the case of receiving 80 calls per day and making 40 sales, the conversion rate is 5 in 10. A higher conversion rate indicates a better selling system rate.

To begin with, it is recommended to measure the conversion rate by salesperson to identify the team members with the highest conversion rates. Studying their methods is vital. It is important to investigate if they have a better selling script, if they are more consistent, or if they handle objections better. This analysis will enable you to improve the conversion rate by finding a sales system that works and consistently sticking to it. It is essential to remember that a conversion rate of 1 in 10 is not necessarily bad. In such instances, doubling the income becomes relatively simple by converting two out of ten sales.

If the conversion rate is significantly higher, such as 7 in 10, it may not be possible to double your income from working in this area alone. However, efforts to increase the conversion rate should continue, and it may be necessary to consider pricing. In some cases, a higher conversion rate may indicate that the pricing is too low. Competing solely on price is often challenging, as a competitor with lower pricing may make you irrelevant.

If you maintain accounts, measuring customer frequency should be relatively straightforward. However, if you do not, it is recommended to establish a mechanism to measure this. Subsequently, contemplate strategies to increase customer visits, such as customer loyalty programmes, competitions, and privileged client clubs. Direct mail can be utilised to invite customers to participate in exclusive offers, closed-door sales, seasonal sales, and birthday surprises. Consistent communication with customers is crucial. The more frequent your communication, the more likely they are to buy from you.

Measuring the average amount that customers spend with your business is critical. It is important to remember to measure this by customer rather than by sale, as some customers may make multiple purchases in a day, week, or month depending on your business. Strategies such as customer loyalty programmes are effective in increasing this figure quickly and can have a profound impact on your bottom line.

It is essential to consistently measure the number of customers your business serves on a daily, weekly, and monthly basis. This information will allow you to identify slow days or periods and indicate when you should intensify your marketing efforts. If you believe you could do more with your customers, it is important to examine how you are spending your marketing budget. Reallocating advertising funds, if they are not performing as expected, towards customer referral programmes, endorsement campaigns, and other more focused campaigns may prove beneficial.

It cannot be overstated how important it is to measure every aspect of your business activities. It is crucial to know precisely how many customers respond to any marketing effort and how much they spend as a result. Every advertisement, direct mail piece, or promotion should have a measurement mechanism, such as a coupon, a special telephone number, a code to quote, or a gift, so that you can determine how the customer came to make a purchase. Then, evaluate whether each marketing effort is effective or if it is costing you more than it is worth.

If a particular marketing strategy is not performing as expected, it is advisable to try another format, use different wording, offer new incentives, or abandon it altogether and allocate your marketing budget elsewhere. It is crucial to understand the lifetime value of a customer, that is, how much they are likely to spend with your business in the long run. Therefore, it can be acceptable to incur losses initially if it brings in a new customer that will provide solid long-term gains.

If you are responsible for a production facility, it is necessary to implement measurements to ensure the efficient operation of the plant. These Key Performance Indicators (KPIs) should not only cover the operation of the production floor but also the planning of capacity and material, as well as the ordering of material and sub-assemblies, stock recording, material issues, and customer delivery.

Accurately measuring the performance of your business allows you to manipulate data and determine the impact of achieving improvements in each area. A mere five percent increase in conversion rate, average sale value, and frequency can result in a significant 25% enhancement in profitability.