If you have been hanging around here for any length of time you should know that I constantly harp on business systems as being THE way to efficiently operate and run any successful business.
Part of any business system or procedure is collecting data on performance for those systems, this is so critical that it must be a part of the business system itself. The good news is that when it comes to collecting data there really are a few simple ways to do this.
First is by measuring the output in dollars or profitability, simply put if a process costs more to do than your making profit than that is a problem.
Another area where it may be hard to calculate a processes impact to the bottom line is by measuring quality… you see higher quality (to an extent) does generally lead to higher profitability. Poor quality is the inverse and has a higher cost usually in the form of rework and lost customers.
As you can see from this when possible your better off measuring the outcome of a process by profitability, although many people can get hung up on how to do this when it comes to some systems.
How do we do this? Let’s look at an example that can be applied to everyone out there running a blog:
Derive your profit per blog visitor: If your blog has 1000 daily readers (or a list with email addresses or RSS reader, etc) and you launch a product converting 10% of those visitors for a profit of $5000 you can than calculate your profit per visitor at $5.
So how do we use and apply this new found metric? Ahhhh…
How much are you spending on generating new blog traffic? You now know that each new reader will bring in $5 per launch. If you where spending money on a PPC campaign or some other traffic generation method and it cost you over five bucks to get one new reader it wouldn’t be profitable. If you hadn’t calculated your value per visitor you could be blowing a ton of money without any return.
Is this overly simplified? Of course. Might this better applied to traffic to a sales page instead of a blog? Sure…
The key point to take away is you can come up with a metric for measuring in profitability even rather abstract business processes that on the surface do not appear to add to the bottom line. The long term health and viability of your business depends on it.
-Jim Sansi
2 Comments
Jim-
Wow. Its so weird to read this post, as I talk so much about implementing Systems into companies on my blog.
I’ll be highlighting your post on the Carnival of Small Business Issues on Tues, Jan. 8th.
Great stuff here!
Thanks, Jason M. Blumer
Jason— Thanks for showing up… stick around and you can get your daily dose of business systems around here. :-)
-Jim
4 Trackbacks/Pingbacks
[...] take my word for it. Try blogging for a few months and measure the impact. (Here’s some great advice from business improvement expert Jim Sansi, on how to measure any business [...]
[...] Sansi presents Business Performance And Profit posted at The Kaizen [...]
a make money blogging carnival - January 4, 2008…
Welcome to the January 4, 2008 edition of a make money blogging carnival.
MAKjohnson presents 1 - Start a mobile snack bar posted at 100 Businesses to start.
Don Morrison presents 1, 2, 3 GET IT DONE! posted at Discount Shopping Card, say…
[...] Business Performance And Profit by Jim Sansi had a great post on actually calculating and measuring the implementation of business processes (instead of just wingin’ it). Using a simple example (that you should expand on), Jim explained how to measure profitability in order to help you know what type of systems you can and should implement into your company. Great stuff. [...]