I love percentages. Give me a financial statement without them and I get pissy. Your ebitda is $1 million. Not good enough! What percent is that of your sales????
Perhaps I am exaggerating just a little, but it is to make an important point. Everything is relative. We use percentages as a shorthand to understand quickly where we need to focus. If you agree with me that efficiency leads to higher profitability, knowing that your cost of freight is higher than industry averages, tells you that there is an opportunity to improve. Let’s have someone look at that. Suppose you explain to me that the reason freight costs are higher is because you are known for fast turn-around and get higher sales as a result. Now, I am excited about your focus on customer service as a differentiator.
How did I find that out? Looking at percentages. I may challenge you to raise your price since you bring more value with your delivery speed, but we may just study the ratios over the next few quarters to see how they change. Good business practices are often slow and subtle. Getting better, or getting worse? Tweak a little bit here, tweak a little bit there.
If the economy slows down, this focus on percentages will go from interesting to critical. How will you need to reduce costs to maintain your current bottom line or improve it? Will you have a plan to jump in and invest heavily when everyone else is becoming more conservative?
This week take a careful look at where you are spending and how you plan to invest over the rest of the year. Is it still serving you? Check your percentages against competitors or other industries. If you have a hunch that you have an opportunity you have not explored, start there. Go love yourself some percentages.
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