Let me start this article off by stating right away we will be looking at numbers. Performance numbers to be exact.
For most people, it’s a snooze fest.
Data isn’t as sexy as discussing shirt styles, artwork, decoration methods, or even employee problems. However, understanding the numbers that drive your success can not only show you what just happened, but they can illustrate what’s around the corner for your shop.
If you pay attention to some critical data points, you can predict the future.
That’s a little more interesting now, right? To do that, we are going to look at something called “Key Performance Indicators”.
Not only are we going to use math, but some vocabulary too. If you already know this stuff, that’s great. But for some, this is new material. So, either way, thanks for reading along.
Key Performance Indicators
Let’s get the number party started by explaining what the heck “Key Performance Indicators” are anyway.
KPI’s are the critical signals about your business that indicate if everything is going according to your plan. (If you don’t have a plan, read this)
The definition of a Key Performance Indicator is detailed by the words in the term.
This means that it is a highly valued item for your business.
You aren’t measuring how many burritos are in the fridge. Instead, you want to prioritize what you consider valuable. Most companies measure about four to ten key areas.
It is up to you define what “Key” means. I’ll give you a few ideas in a bit.
This means you are assigning some sort of value or number to the Key item.
If you think about your car, you know that performance can be measured in different ways than in simply looking at the speed.
You could look at miles per gallon for gasoline, or the relative safety numbers for that particular model. Maybe even the maintenance costs per year, or how many people per trip are in the car? There are many ways we can discuss performance, especially in your shop.
For each of your key items, how would you quantify success?
This is the signal you are looking for when you are combining Key and Performance.
Is the number good or bad? The basis for your “what next” decisions will be focused on this idea.
Let’s say your salesperson you hired had $20,000 in orders for the month. That may be great for some shops, but a dismal failure in others.
It’s the signal compared to our goal that we are looking for in the number. Once you know the value of the performance number you can start to make decisions and be proactive in changing things for the better.
Historical Numbers = Review Mirror
While looking at data points about what just happened is great, that’s not what we are going to focus on with this article.
Tracking data over time shows what happened. It’s like looking in the rearview mirror when we drive our car. It’s nice to see that but doesn’t help us steer the car very well.
What we want to do is to use that data and apply some creative thinking to it to predict what might happen to the shop based on how we define that success.
It is predictive logic.
Traditional Shop KPI’s
- Order Sales Total – this is the total amount of sales for a defined time period. This could be per day, week, month, quarter, or year.
- The Average Quantity per Order – this is the average number of shirts sold per order.
- Production Impression Total – this is the total amount of decoration impressions produced for a defined time period. This could be per day, week, month, quarter, or year.
- Set Up Time – this is the total time needed to set up the job in production. As downtime is the number factor that needs to be controlled in production, this is an important variable. For screen-printing, this can be measured in minutes per screen. In embroidery or digital printing, this is simply setting up the job.
- Average Number of Screens per Order – for each order, this is the average number of screens used for the job. This includes the underbase screen and wet white. Therefore a job that has an underbase, two colors, and one highlight white, would be a four-screen job.
- The Average Turn Time – this is the average in business days from order entry to the order shipping that it takes to complete an order.
- Average Defect Rate – this is the percentage average of errors in production per impression. Note that this is not per shirt. A 200 piece order that has two decoration locations, with a shop that has a goal of under 1% errors would try to stay under 4 errors for the job.
- The Average Run Time per Hour. This could be in stitches for embroidery, or impressions for screen-printing or digital printing. About how many do you produce per hour on average?
These are the traditional things that shops measure. I like measuring them as it paints a good picture of what’s going on. In fact, once you get a good grip on this information you can use it to build a fairly accurate production schedule.
But that’s not what we are talking about today.
Nope, today I want to turn the corner and look at a few different points that can illuminate the darkness ahead of you.
We want to be thinking eight to twelve weeks down the road. Are things looking great or are we about to drive the car over a cliff?
New KPI’s to Measure
- The Number Active Prospects or New Opportunities – how many potential customers are interested in what you do, or how many opportunities are currently out there that you need to dive into?
- Business Development Meetings Scheduled – how many “whales” or big account meetings does your shop have set up in the next few weeks?
- The Number of Quotes Outstanding – this is the number of potential orders that are out in the customer’s hands that have not been closed yet.
- Your Current Close Rate Percentage. If you talk to 100 people, and you take orders from 20, your close rate percentage is 20%. Have you calculated yours?
- Total Daily Sales – track your daily sales. Understand how the needle moves. Also, if you haven’t already calculated this, what is your shop’s breakeven point for sales? This is the minimum monetary amount to keep your head above water.
- Sales Growth Percentage – this metric is based on the percentage of change and measures the total sales for a given period. Do this weekly. Measure the percentage of change from one week to the next. You’ll see an increase or a decrease in sales every week. Are you up or down?
- The Daily Total Number of Orders Booked – how many orders are in the system and need to be completed? Grab this number every morning. This is the current jobs on your plate that you need to produce.
- Current Accounts Receivable – this metric helps estimate the upcoming income and measures how long it takes for customers to pay their accounts in full. This metric is all about cash flow.
You Can’t Manage What You Don’t Measure
As you can see, the first group of data points mentioned was mostly about measuring what happened in production.
I’m a huge advocate for that, as those data points are needed to comprehend the costs side of things.
To predict the future of your shop, however, you’ll need to look at what is coming into the shop to work on.
The best way to predict that is to understand your sales cycle. Of course, this is going to vary constantly throughout the year.
Let’s explore some basic math on this so you can see how it might apply to your shop.
What’s In The Hopper?
To get a grip on your potential future the best place to start is with the number of opportunities in front of you. How are you generating those for your shop?
For some, they compete by being 100% online. It’s all about getting eyeballs on the website or Click Funnel. Their marketing efforts are based on developing the interest in what they do and converting those prospects.
Other shops have a crew of salespeople that drum up business the traditional way by pounding the pavement and meeting customers.
Some shops have a hybrid of both. In this industry, there really isn’t a right or wrong way.
But what we want to find out is how many of these opportunities are you working on at any given time? These are the sales leads that are in development, regardless of the method of conversion.
Is your shop tracking this?
Let’s Work Out The Math
For an example shop, let’s say that they need to produce thirty orders a day to be reasonably ahead of the game.
It’s their average.
If their average closure rate is 20%, how many opportunities should they have in front of them at any given time?
Thank you Mr. Wizard. The answer is 150.
So to keep a constant volume of work in the shop of 30 jobs or more per day, there need to be at least 150 prospects out there at any given time.
Therefore a future predicting KPI for the shop could be the number of opportunities on the horizon.
Less than 150 and the shop will be slowing down. Ut oh.
More than 150 and the shop will get busier. Cha-ching!
Why Is This Important?
Understanding what may be around the corner is helpful in many different ways. For example in how you manage your crew, or decisions to make regarding equipment purchases.
When things slow down or speed up in the shop, different creative thinking and planning need to occur.
You can be proactive.
Do you need to bring in more people or potentially reduce hours? Should you do something different with your marketing? Can Fred take his vacation?
It’s kind of funny that you are reading a blog article and now it looks like you have some homework to do.
Not what you were expecting?
The goal of these articles is to suggest ways you can run your shop better. If that sounds like a good idea, then take a few minutes and dig into this stuff and get your shop’s math handled for your own KPI’s.
When you understand your own numbers, you can make better-informed decisions about how to run your business. Don’t worry that you may haven’t handled this type of information before, or how your shop might compare to others.
Your math is your math.
Just like your blood pressure information is unique to your health. Taking it allows you to understand what you need to do to manage your own body. Obtaining these numbers and paying attention to them works the same way.
So let’s look at each of these a little closer and see where your numbers might fit in.
The Number Active Prospects or New Opportunities
This can be from data from Google Analytics for your website, or from a dashboard report from your sales staff or customer service team.
Define what this means to you.
Is it “unique visitors” to your site? Maybe it’s the number of inbound phone calls? It could be the three thousand people on the mailing list you just bought.
However you define it, make sure that everyone knows to obtain and record the numbers the same way. Standardize it so that the method that you are developing your data for this is a constant.
For the KPI for this idea, quantify what this means for your shop. Describe what success looks like for the number.
If you are under that number, what does that mean? What actions should start?
Maybe you are over that number? How is that going to affect your shop down the road? Are there other actions that should start happening?
Bonus: As your shop grows, this number will probably change. Let’s say you add some new equipment like a new press, DTG printer, or 6-head embroidery machine. To keep that workgroup filled with orders to produce daily, what should your new KPI number be?
Business Development Meetings Scheduled
This is a little different than mere opportunities.
When you talk to the big dogs about getting their business, it can have a significant impact on your sales for the entire year.
If you take a look at your historical sales, you’ll see that the top 20% of your customers give you 80% of your revenue. Look this up. It’s a fact.
These are the customers you want to clone.
But, they are harder to land. You need to be developing these with an on-going effort to scale your business with any significant growth.
So, in the next 4-8 weeks how many of these presentations do you have scheduled?
If this number resembles a Hula-Hoop, is it any wonder your sales growth is flat?
As these are more elusive, start setting some KPI goals for this. Track your progress and measure it against your targeted sales goals.
The Number of Quotes Outstanding
This is a good one for production scheduling purposes.
When you quote a job it might take a few days or even up to two weeks for that quote to be accepted.
Some will be rejected, while others might have some changes to them before they go through.
Paying attention to this KPI, especially for production managers, can give a good indication of what’s headed their way in the next few weeks.
For most of the shops that I’ve either ran or have been working with, what’s booked for production is usually only 2-3 weeks out. After that, it’s anyone’s guess as to what might be needed.
When you see the number of quotes outstanding number go up, you can bet that the stress on production will increase. Will you need overtime to complete everything? Should you start looking at outsourcing some jobs to stay on track? Maybe start up a second shift? Bring in some temp labor?
Conversely, if the number of quotes outstanding KPI number drops, things might be easing up. If they slow down too much, will you have to start cutting hours? Push more people into some training time? Work until lunch on Friday’s for a bit?
Nobody likes last minute announcements. Have you said these in the same month before?
- “Guess what everybody, mandatory overtime starts on Saturday!”
- “Guess what everybody, we’ll be closed tomorrow because we don’t have any work.”
Paying attention to this KPI allows you plan for what’s coming in production and stay ahead of the game.
Your Current Close Rate Percentage
How effective are your company and closing deals?
This is a great KPI to understand your sales cycle and how many prospective customers you should be in front of daily. It’s always a numbers game.
Not everyone will buy from you. There are plenty of reasons, and that’s probably another article.
For this KPI, get your percentage established. Of course, you want to work on increasing it.
In the meantime, find out how many pitches you need to swing at to hit a home run.
If you aren’t swinging at enough pitches, you won’t be scoring. Calculate this number so you can start working on improving it.
Total Daily Sales
Are you tracking your daily sales revenue number?
While reviewing this weekly, monthly, quarterly, and yearly are important…looking at this daily KPI can mean that you can make some proactive adjustments if you aren’t seeing the sales you need.
Maybe you need to increase the amount of outbound sales calls? Build a new MailChimp marketing campaign? Review the quotes in the system and follow up so they close?
Keeping an eye on the Daily Sales KPI can lead to a proactive approach to hit your overall sales goals for each selling period.
Don’t wait until the end of the week or month to make an adjustment. Be more nimble and react in a positive way.
Sales Growth Percentage
This is a good metric to keep track of as a week over week percentage.
For starters, this can tell you if your work to increase sales is working or not. Even a 1% growth rate per week can make a significant change by the end of the year.
But, unless you are monitoring this and making adjustments you might not get the results you want.
Change is an on purpose event.
My friend Mark Coudray says a lot of shops have an “Oyster” approach to sales. “They simply sit there at the bottom of the ocean with their mouths open like an oyster. Anything that floats by gets consumed.”
Don’t be an oyster. Be a great white shark.
Hunt on purpose.
The Daily Total Number of Orders Booked
How many orders are in the system that you need to produce right now? Do you know?
This KPI should be at your fingertips at all times. What is your average number for this month historically? For next month?
Are you tracking this to you know on a constant basis what’s out there?
Bonus – How many of these jobs are late? Better yet, how many of these jobs are within two days of the ship date and haven’t even been started yet? Do you have a plan to ensure success?
Current Accounts Receivable
This one deals with a cash flow challenge.
Even incredibly busy shops can go out of business if they don’t manage their money correctly.
Depending on the market you serve, there could be a significant outlay of money in COGS or labor before the customer settles up. If this rockets up to unsustainable amounts, it could spell disaster for your shop.
Are you looking at this on a consistent basis?
This KPI can either give you peace of mind, or trigger alarms. Hopefully, you aren’t in the red alert camp.
Bonus – if you constantly have cash flow problems with a significant portion of your clients owing you money, don’t wait until it is too late to make changes. This means putting customers on “credit hold” so they pay you for outstanding work before you accept new orders from them. It is tough to say no. Even tougher to allow the inability to pay you to jeopardize your company.
Bonus Part 2 – Ask yourself if being a bank for your customer is in a good thing for you or not. Don’t forget you can change the terms of the relationship.
This was a fairly long article, and if you made it this far give yourself a pat on the back or go get a cookie. Or a beer.
You deserve it.
Looking at numbers is a bone-dry practice and usually not a lot of fun. Obtaining the data and building an easy to use dashboard can be a chore.
It doesn’t have become anything elaborate. Scribbling these on a legal pad or a whiteboard can work. The important thing is to keep these metrics, review them constantly, and actually use them to make decisions.
This is why shops that use data to comprehend their business will far surpass shops that simply wing it and hope for the best.
The prepared become lucky.
The question is: How prepared are you?
“An ounce of performance is worth a pound of promises.” – Mae West
“Don’t lower your expectations to meet your performance. Raise your level of performance to meet your expectations.” – Ralph Marston
“A manager is responsible for the application of performance of knowledge.” – Peter Drucker
Speaking of Performance Numbers
Do you have a firm grasp of what it costs you every day to run your apparel screen-printing shop?
Are you using the “Average of all of the shops around me” as the basis for your price list because you never learned to do it properly?
How does the average Cost per Impression for what you do factor into more profit?
What are some ways you can charge more for what you do and increase your revenue?
This best-selling $59 eBook is written for shops to help demystify how to construct a pricing list that will ensure profitability.
It contains easy to follow, step by step instructions on how to run your shop better.
Whether you are new to the business or a seasoned veteran of the industry, this eBook can help you understand pricing strategies that work.