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2013

In order to be effective, a good business tool must be simple, easy to deploy, and provide clear benefits. That, in a nutshell, describes a dashboard. “Like the sun rising in the morning, dashboards are reliably available—same time, same day of the week, without fail, regardless of sickness or bad numbers,” says Jim Drew, a business coach and consultant specializing in CEO-level strategy and leadership. Dashboards provide a simple, one-page snapshot of the key performance indicators (KPIs) you select for your business, and you can customize them to cover the three or four critical issues you most want to track at any given time.

 

Standard indicators that all businesses should be tracking include revenue, profit margin, percent of repeat business, customer lifetime value, average order/transaction size, type of product or service purchased, and marketing source for the transaction, says Yoon Cannon, a serial entrepreneur and business growth coach. Choosing the right KPIs to include in your dashboard is a function of the industry you are in and the specific goals laid out in your most recent business plan or strategic plan. (Retail metrics firm Kipfolio offers this link, which illustrates of some common KPI metrics [conversion rate funnel, sales per square foot/location, average purchase value, cost of goods sold, etc.] in dashboard report form.]

 

“For example, at a staffing company, the number of hours booked for the temporary workers placed is a key driver of profitability and should be included in the dashboard,” Cannon says. “Profitability at a landscaping company, on the other hand, might be more directly affected by how well job-costing numbers are being met. Having that KPI in a dashboard can help to hold project managers accountable for getting their crews to finish installations on time or ahead of schedule.”

 

Growth-oriented businesses doing up to about $1 million in annual revenue should focus on KPIs with the most direct impact on cash flow and profits, says Sabrina Parsons, CEO of Palo Alto Software, a developer of business planning and marketing tools for growing businesses. The time periods used for measuring KPIs are also important. Businesses in the early stages of growth should always compare KPIs to the previous period (this month vs. last month), the same period last year (this month vs. same month last year), and the planned forecast (what your business plan or financial projections call for you to be achieving).

 

Drew Williams, managing partner at business consulting firm nuRevenue Partners and co-author of Feed the Startup Beast (McGraw-Hill, June 2013), says the most important advantage a dashboard provides to growth-stage companies is an answer to the question, “Am I on track to meet my annual objectives?” “The benefit, of course, is knowing that your business is headed in the direction you set out for it, and the sense of control that imparts,” he says. “Control and visibility make for a happy, less stressed, more empowered owner.”

 

Dashboards are easy to come by. They’re available as off-the-shelf software or on a subscription basis via the cloud, but the concept is simple enough that many companies choose to make their own. “You can easily create your own dashboards in a simple Word document which you populate with whatever metrics you choose,” Cannon says. “You can also get great dashboards from Excel.”  Canon recommends this free resource for finding a range of Excel templates.


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It’s a rare business that operates on a “one-and-done” model when it comes to customer transactions. “Most companies now realize that the value of a customer transcends a single transaction,” says Ken Homa, a professor at Georgetown University’s McDonough School of Business. Managed effectively, the “right” customers can provide a lifetime of transactions and an extended stream of sales and profits, he says.

 

Customer lifetime value (CLTV) represents the profit you can expect to realize from sales to a particular customer starting from the time he or she begins doing business with your company. Calculating CLTV requires the use of historical data, which in and of itself is backward-looking, but the exercise is all about looking to the future. Determining CLTV can help you shift your focus from short-term results to a longer-term perspective on the overall health of your business. It also provides important guidelines on how much you should spend on acquiring new customers versus retaining existing ones.

 

Homa breaks down CLTV as a function of four variables: customer acquisition costs; projected sales, profits, and cash flows; customer defection and retention rates; and company discount rate (the cost of capital). So, the general formula for calculating CLTV is:

 

CLTV = (M/d + i) – AC

 

  • M represents the annual profit margin generated by a customer
  • d is the annualized defection rate (sometimes referred to as “churn”)
  • i is the annual discount rate (cost of capital)
  • AC is the cost of acquiring the customer.

Using a highly simplified hypothetical example of the above formula where:

 

  • M = $175 (net profit realized on final day of fiscal year)
  • d = 20 percent
  • i = 10 percent
  • AC = $250

 

Then:

 

CLTV = $333.

 

CLTV is essential to generating an effective customer relationship management (CRM) strategy, says Graham Cooke, CEO of Qubit, a retail technology company focused on CRM and automating tag management. “As marketers, we need to focus on the high-value customers, or customers with the potential to become high-value, to maximize our bang for the buck. By calculating CLTV you can do more effective segmentation of customers and then tailor your CRM strategy accordingly,” he says. Effective segmentation using CLTV allows you to lower customer acquisition costs by improving your ability to focus marketing resources on the most valuable targets. “If you can identify consumers with the highest propensity to convert and the highest potential value, your ROI from these paid channels will be much higher,” Cooke says.

 

While the concept of CLTV is equally applicable regardless of company size, smaller businesses may not have the information systems in place to capture and report all the data needed, especially for more sophisticated modeling approaches, Homa acknowledges. “These companies have to decide if building the systems to collect and analyze the data is worth the investment. Usually, it is,” he says. Mark Gayle, founder of 5K MVP, a developer of Web applications for businesses, points out that smaller businesses with limited data resources can use low-cost technology such as social media to identify customer segments with the greatest potential CLTV. They can then combine good insight and business agility to reap the benefits of CLTV on a minimal budget.


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Inc.

How P-Cards Streamline Payables

Posted by Inc. Dec 3, 2013

The use of purchasing cards (P-cards) has been growing steadily since their introduction in the 1990s. P-card spending in North America increased by almost 22 percent from 2009 to 2011, when it reached $196 billion, according to RPMG Research Corporation’s 2012 Purchasing Card Benchmark Survey Results. That growth is being driven by P-cards’ ability to leverage automation and technology to streamline the purchasing process, helping business owners increase efficiency, save money, and gain insight into their spending patterns. However, the scope of P-cards’ potential advantages is tied to scale, so early-stage growth companies should conduct a careful analysis before launching a program.

 

P-cards are part of the commercial card product category, which also includes corporate travel and entertainment (T&E) cards, small business cards, and similar products. Commercial cards can be credit, debit, or prepaid cards. A P-card allows organizations to take advantage of the existing credit card infrastructure to make electronic payments for a variety of business expenses, goods, and services, according to the National Association of Purchasing Card Professionals (NAPCP).

 

According to a recent report from PayStream Advisors, the three most important benefits cited by organizations using P-cards are increased convenience for employees (72 percent), rebates and incentives from P-card issuers (67 percent), and lower processing costs (56 percent). The key drivers behind increased adoption of P-card programs are a desire to reduce procure-to-pay transaction costs, a push to eliminate paper, and a desire for better cash management.

 

A traditional procure-to-pay process usually involves a requisition, purchase order, invoice, and check payment, and it is the same regardless of the dollar amount of the purchase; the process cost of a $25 purchase is the same as for that of a $10,000 purchase. Estimates of individual transaction costs using the traditional procure-to-pay process range from $50 to $200, according to the NAPCP, meaning the process cost can easily exceed the price of the item or service itself in the case of smaller purchases. When the payment method is switched from the traditional process to a P-card process, efficiency savings range from 55 percent to 80 percent of the traditional process cost, the group reports, with P-card usage saving $63 per transaction, on average.

 

“P-card issuers tend to target their marketing towards existing businesses with substantial levels of annual revenue and a solid, verifiable financial track record,” explains Greg Hammermaster, president of Sage Payment Solutions. “The underwriting process can be fairly arduous, and online P-card management systems tend to be more focused on the mid-size and larger markets.”

 

Before embarking on a P-card program, you should conduct a thorough analysis to determine if it is right for your business, Hammermaster advises. Factors to consider include:

  • the cost savings you expect the program to provide
  • how widely the card will be accepted by vendors and suppliers
  • what kind of technology support will be required (accounting, information management, etc.)
  • your company’s current state of creditworthiness
  • the structure and controls you will have to put in place
  • risk management (protecting against abuse, misuse, and liability)
  • and what kind of support you will have to provide (implementation, training, cardholder support, etc.).

 

In some cases, developing businesses may be better served by alternatives to P-cards, some of which can provide many of the same advantages. “Business prepaid cards, for example, offer the same level of controls, such as blocking merchant categories and setting spending limits,” Hammermaster notes. Unlike P-cards, prepaid business cards do not require credit checks or underwriting, which can be important for business owners looking to keep their personal assets separate from their business liability. Some prepaid business card programs include other useful features, such as mobile apps that let cardholders view their balances and transaction history and request additional funds. “That lets the business owner or program administrator fund the cards instantly on an as-needed basis,” he says.

 

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