Every Business Needs the Correct Economic Indicator

by Rand Manasse

As a business leader you understand the importance of profit.

Every great business needs to have three qualities that intersect. The first two involve understanding what you want your business to be along with what your business can be the best at in the world.

 

Making profit or finding your economic engine is the crucial third part in the intersection.

 

If your business doesn’t make money it won’t matter if you are the best at something. You need money to fuel your passion.

 

Finding the Economic Indicator

 

Every business has an economic indicator. The trick is making sure the indicator aligns with the goals of the company.

 

The indicator might be profit per employee or it might be profit per item sold or profit per hour worked. Profit is often involved in determining the health of the economic engine.

 

What you need to determine is what is the single most important focus of your company.

 

Even major companies have indicators including Walmart. The retail giant has been fighting a battle with the major credit card companies over swipe fees. Walmart realizes that its economic engine is driven by low prices. In order to maintain the lowest prices in the world Walmart needs to fight to keep all costs down including the cost of transactions. If credit card companies are able to increase their fees as they please Walmart’s economic engine is compromised. The indicator for Walmart is to watch the profit per transaction. When that goes down as it has with credit card transactions action needs to be taken to maintain the current model.

 

Your indicator needs to align with the goals of your business, but it also needs to align with what your business does better than anyone else. If any of these three are not in line the business can go down the wrong track.

 

Determining Your Business Indicator for Today and Tomorrow

 

If your business has been around for some time there is likely an economic engine at work. This is what has keep the money coming in all those years. Maybe you’re looking to change course, though, in order to position your business for more success in the future.

 

The assessment of what you are today as a company is important in understanding what you need to become in the future. Analyze every aspect of your company with specific focus on the economic engine. From there you should be able to determine the economic indicator that is currently important for keeping that engine going.

 

As you gain an understanding of what drives your business today you can then analyze the trends and indicators in your industry. You’ll start to realize if you need to change the business model. If change is necessary you’ll need to determine again how you can build a new economic engine.

 

Perhaps the existing engine will fuel change in the future until you can sustain on the new engine. This is common for many businesses. It’s happened for companies that have gone from catalogs to online in the past 10 to 15 years. It’s happened in the entertainment industry where focus on shifted from selling discs to selling downloadable files.

 

Change is always present in the business world.

 

It’s important to understand how your business economic engine works. Determine the economic indicator that drives the engine. Analyze the indicator to see if there are threats to your current business model. If there are threats you’ll need to create a plan for change.

 

Great businesses follow their indicator religiously. They use it to make decisions throughout the company. An economic indicator is vital to a company’s success.

 

Do you understand your business economic indicator?


As always, please leave me a comment and let me know what you think. If you need help in building value into your business, please contact me at 914.741.5200 or rmanasse@referencesystems.com.


To your success!

Rand 


Image Credit: Kevin Dooley

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