Business: “What Is The Economic Engine Of Your Business?” by Alan Goswell

What is the economic engine of your business?

There’s an old saying: if you take care of the pennies, the pounds take care of themselves. My mother used to repeat it endlessly when I was a kid, almost mantra-like. However, there really is elegant simplicity to the saying which can be applied to business.

The principle is simple: if we focus on the significant few metrics in business, then all of the other metrics take care of themselves, freeing you up to do what you do best which is finding new clients.

So, there a million ways to Sunday to measure all and any aspect of your business performance.  Here are just a few…

  • Footfall

  • Profit

  • Phone Calls

  • Customer Visits

  • Average Transaction Value

  • Jobs Completed

  • Orders Booked

  • Gross Margin

  • Debtor Days

  • Liquidity Test

  • Inventory on Hand

  • Sales

  • Cost of Sales

  • Overheads

  • Profit per job

  • Inventory Turns

  • Jobs per day

That’s quite a list and they’re all really good measures. But measuring all those accurately would take half your working day – and there’s no need to explain why that’s a bad idea.  One thing’s for sure though, all these metrics mean nothing if we don’t make a profit, and use the right metrics to drive that profit.

So what has this to do with an economic engine.  Well, recalling how we started this article, about the pounds and the pennies.  In business if we could find just 1 metric to take care of, whereby all other metrics take care of themselves, then that 1 metric is the economic engine of your business.

For it to work, it needs to be 1 metric that you can easily measure and influence that will drive your profit.  We’ve talked about profit, but what about the other 2 key elements in that definition?

EASILY MEASURE; you don’t want to spend a lifetime disappearing up your own backside measuring every little thing about your business, you want 1 thing that is easy to measure.

INFLUENCE; and once you work out the 1 thing, you’ve got to be able to influence it.  That’s usually done by specific marketing activity.

Let’s consider a real-life case study of a locksmith: Steve Taylor operating on the expat community in the Costa Blanca.  Steve’s business is based on discretionary and distressed purchases.  People who are proactive about security, and those that find out the hard way after a break-in.  There’s actually a third subset of people, those that lose their keys in a bar on a Saturday night and need letting in at 6 in the morning! I’m sure you can guess which he hears more from!

Anyway, Steve needs 200 jobs a year to live, based on his known average profit per job.  All jobs are booked via a phone call.  Last year, Steve received 240 calls which resulted in 206 jobs.  Thats a staggering 85% conversion rate.  Moreover, Steve’s conversion rate has been consistent at 85% for the past 4 years.  He knows this because he measures everything! So its easy to see what is the economic engine of Steve’s business, its keeping the phone ringing.

Its why you see Steve’s promotional material, it’s clean and simple, and appears in lots of different places using a variety of promotional material (print ads, leaflets, business cards, online banners, website etc).  His phone number is so important to Steve, he can’t afford to consider changing it.  He encourages people to programme it into their mobiles. If Steve lost his phone number, it would be curtains!

On an on-going basis, Steve has adjusted all his promotional material to make sure people have his phone number to hand.  His promotional material even includes a QR code so people can easily scan and save his details in their contacts.  He added mobile-friendly pages to his website and paid for some SEO.  If you’re in need of a locksmith at 4 in the morning, and you can’t get in, a simple web search on your iPhone will show Steve pretty well at the top of Google.  Tap on the link, and you’re presented with a simple option to click and call!  Simple, easy, effective.

Since this level of focus, Steve’s call rate increased by >20% year-on-year, and although he still measures many aspects of his business, none gets more attention than keeping the phone ringing!

In summary, if you can figure out what the pennies are, and work out how to take care of them, you’ll have identified and utilised the economic engine of your business to drive profit!

Alan Goswell

alan g