The work done day in and day out across your business is triggered by a sale being made. Each month, sales made representing potential cash inflow will total up to your Net Sales for the month. You will either be better than the target, worse than the target, or on target. Those are the only three options.
Depending on which of these options is true for your business for both the month and year-to-date will affect the decisions you must make to advance your business in the right direction. Using both leading and lagging measures to know what’s happened and is likely to happen in sales is what profitable business owners do to remain profitable.
Below are the monthly key results indicators (KRIs) and their respective metric formulas associated with sales that tell you how well your business is “getting work:”
Monthly Net Sales: Monthly Gross Sales – Refunds – Bad Debt = Net Sales
Year-to-Date Net Sales: Year-to-date Gross Sales – Refunds – Bad Debt = Net Sales
Year-over-Year Monthly Sales Percent Change: Current Months Sales – Previous Year Month Sales / Previous Years Month Sales = Year-over-Year Month Percent Change
Year-over-Year Year-to-Date (YTD) Sales Percent Change: Current YTD Sales – Previous YTD Sales / Previous YTD Sales = Year-over-Year YTD Percent Change
Monthly Actual as a Percent of Monthly Sales Goal: Actual sales divided by planned sales for the month
YTD Actual as a Percent of Total Sales Goal: Actual sales divided by planned sales year-to-date
All you need to confirm whether you have sales issues is to apply these simple equations to your P&L Statement results. Do this monthly, and you will know what your business can afford to spend and your likely cash inflow to fund your expenses and profits.