Hardwood Floors June/July 2018

Benchmarking (Continued)

$400 discount on the purchase of the entire study. According to Catalina Research, “This in-depth analysis indicates how the $3.8 billion wood flooring industry has penetrated the builder and residential replacement markets over the past decade. Data trends on species, pricing, residential and commercial markets, retail distribution channels, and customer demographics give wood flooring manufacturers and marketers information to develop strategies that allow them to make further inroads in the U.S. floor coverings industry.” Take advantage of this and other industry trade reports to spot potential KPIs or trends that will impact your business. Keep in mind that some indicators are lagging and some are leading. Lagging indicators are typically measured by past data while leading indicators are input oriented and can predict something in the future. Both are important, but finding a good leading indicator to track can lead you to better decision making that can make you more successful and secure in the future. One leading indicator in the wood flooring industry might be housing starts. More housing starts typically result in more wood flooring purchases in the near future. Don’t forget other ratios or metrics that might be specific to you or your location. Ask friends in the industry what they track. Determine which operational and financial performance metrics result in the most impact on your success, then track those on a dashboard at regular intervals. Your benchmarking process can evolve over time as you get more experienced with tracking. KPIs can also change for the industry overall, so don’t think of adjustments to your process as a failure. Many great businesses have failed due to

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profit level back in line with where you need it to be to have success and security. A funds management ratio that is important for most industries is the trade receivables turnover and days’ sales in receivables. Calculate your trade receivables turnover by taking sales for a time period by the average receivables during that same time period. If your trade sales for a year are $2 million and on average you have $300,000 owed to you from customers, then your trade receivables turnover is 6.7 and is in line with the 6.9 published in the IBISWorld flooring installers report for small businesses. Take 365 (the number of days in the year) divided into your trade receivables turnover of 6.7 to come up with the average days’ sales in receivables. That would be 54 days in this scenario. Track this over time to see if you compare to the industry average and yourself over time. You could also track it more often (i.e., monthly or quarterly) to spot times of the year when your numbers fluctuate. You could be proactive during those times to work with customers to pay more timely or simply know it’s coming to finance your operations during those times. NON-FINANCIAL BENCHMARKS Not all key performance indicators are financial. Many are related to your operations. Try looking at customer satisfaction. Find a way to rate a customer’s satisfaction on a scale and compare that over time. As customer satisfaction rises, so will your success in other areas of your business. What other non- financial indicators result in success for you? NWFA provides members with the executive summary of the Catalina Report for free as a membership benefit as well as a

their lack of ability to accept change. Ultimately only you can determine what success and security look like for you. If you are tracking well against your own values in life, you are successful. Bree Urech-Boyle is Chief Financial Officer at the National Wood Flooring Association in St. Louis. She can be reached at bree.urech-boyle@nwfa.org.

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