Advanced KPIs For Your Business - Part 2

Last week, we discussed Revenue broken down by Product/Service as the starting point for all business owners to understand their KPIs (key performance indicators). I drew the connection between KPIs and your car's dashboard indicators. No one would drive their car without the information from their dashboard. Yet, business owners manage their business all the time with little awareness of their key numbers. Unfortunately the most used metric by business owners is their bank balance. That is a recipe for making bad decisions due to the nature of bank balances which change minutes after you sign-out of the app.

Today, we are going to explore an important metric: Overhead.

2. Overhead

While revenue is a part of every business, so is paying expenses. Of those, overhead, also called fixed costs, is important to break out and track separately. Overhead refers to the ongoing costs of running a business that is not directly related to the creation and sale of your product or service.

Rent, legal fees, employee salaries, and utility bills are examples of typical business overhead expenses.

Tracking overhead matters because it defines how much revenue you must generate to cover these costs. It also shows what percentage of your income is going to overhead rather than the production of items that generate revenue.

If overhead is too high, you must work to reduce these costs, such as moving to less expensive office space. To track overhead, simply total up all costs related to running your business with the exception of variable costs (see below).

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

My name is Diana Miret.? As a Christian fractional CFO, I provide financial counsel to businesses earning between $1M and $10M to increase profitability, optimize cash flow management and heighten financial confidence and clarity. You can find me at www.dianamiret.com