I love getting out with our sales directors to visit prospects and customers—especially if it’s a need around business acumen. I’m kind of a nerd about this and get pretty animated when talking to other people about their business and the metrics they use to measure success.
I wanted to share five of the business acumen metrics that I heard throughout 2017, as well as the metrics, ratios, and focus points that we’re most commonly asked to concentrate on while building a business acumen solution.
1. Gross Profit Margins (GPM)
I know this may sound like a “no brainer,” and perhaps it is—and yet, this metric still seems to be a focus everywhere. It’s the one metric that we are asked to create laser-focused activities around year in and year out. If you can’t improve the gap between what you sell your product or service for and what it costs you to provide it, then mission control, we have a problem.
2. Return on Invested Capital (ROIC)
As high potentials and supervisors complete their leadership development programs, and are put in roles where they are expected to evaluate capital investments against hurdle rates, this metric for a more senior audience is essential. As such (and every company has a bit of a nuance to ROIC), this critical metric has shown up even more in recent years.
3. Working Capital Management (WC)
Every company needs working capital. It tells you if you have enough cash to operate your business day to day, and every company is looking for ways to expand this liquidity indicator. We recently received a letter from one of our customers that read, “We are writing to inform you that our payables policy has now changed from 45 days to 60 days.” This was clearly designed to extend their working capital while adversely effecting ours. Getting employees inside organizations to better understand their influence on the components of working capital hits our top five list for 2017.
4. Cash Conversion Cycle (CCC)
So many elements in the cash conversion cycle can be affected by a wide swath of associates in an organization, making this metric show up a lot in our work. And if I had a quarter for every different graphic that we have developed to help our customers understand their CCC, I’d be a pretty satisfied jukebox.
5. Return on Assets (ROA or RONA)
This measures how well we’re using what we own to make money with. Because of the need to manage inventory to the right levels, this efficiency metric always creates a lot of lively conversation in sessions we conduct for our customers.
Obviously, there are a plethora of other business acumen concepts and metrics that are important to the success of our great customer base, yet these five showed up in 2017 more than most. How about you? What metrics, ratios, or focus points does your business focus on to help your employees understand the impact of their day-to-day decisions?
Read our Business Acumen Accountabilities to see how financial literacy makes an impact.