Measuring profit drivers
Keeping track of your profit drivers and regularly measuring their impact will help you evaluate the success of your strategies.
There are a number of calculations you can use to measure your profit drivers, including:
- earnings to sales ratio - to measure how well you are containing expenses
- sick days to total paid days ratio - to measure your staff morale and safety
- error rate ratio (items rejected versus items produced) - to measure production quality.
Earnings to sales ratio calculator
The earnings to sales ratio measures your profits against your sales to make sure you're not spending more than you're making. You can use this ratio (expressed as a percentage) to measure how well you are containing your expenses. For example, you might set yourself a goal to achieve better than 18%.
Use the following calculator to help you work out your earnings to sales ratio. Once you have read and understood the example, you can type the numbers that are relevant to your business into the calculator to see your earnings to sales ratio.
Sick days to total paid days ratio calculator
Measuring the ratio of sick days taken to total paid days can give you an indication of staff job satisfaction, as well as work health and safety measures. A high percentage here means your staff may be unhappy or injuring themselves at work. If this is the case, you should consider some morale boosting activities, or review your work health and safety policy.
You could also look at the days most of your staff take sick days - if these are usually on a Monday or Friday (rather than mid-week), this might indicate a lack of job satisfaction.
Use the following calculator to help you work out your sick days to total paid days ratio. First, you should decide an acceptable percentage for your business. Once you have read and understood the example, you can type the numbers that are relevant to your business into the calculator to see your sick days to total paid days ratio.
Error rate ratio calculator
This ratio will help you evaluate the quality of your production and whether the cost of producing your goods is too high. A high number may indicate you need to look at your production processes. For example, your goal might be to achieve an error rate of less than 1% (i.e. less than 10 items rejected in 1000 produced).