Calibrate Your Business

09 Sep Calibrate Your Business

CALIBRATION

Calibration is a process that ensures accurate and precise performance confirmed by quantitative measurements. One might think of calibration in terms of a precision manufacturing measuring device, tuning a musical instrument,  an eye exam, zeroing a hunting rifle or living a healthy lifestyle to ensure your medical vital signs are all functioning in the ideal range.

Every business has the potential to function like a well-tuned jet engine when its interdependent parts are properly designed, manufactured and calibrated. The key to calibrating a business requires knowing how the critical management system components work together (i.e., the interaction of interdependent parts).

REVENUE-TO-PROFIT CONVERSION

Revenue is the money generated from normal business operations, often calculated as the average sales price times the number of units sold. It is the top line (or gross income) figure from which costs are subtracted to determine net income (profit). Revenue is also known as sales on the income statement.

The Revenue-To-Profit Conversion Diagram below is depicted like a jet engine. Customer orders are converted by way of a business management system (e.g., leadership, people, culture, strategy, structure and process) designed and calibrated to maximize profit.

The Revenue-To-Conversion Profit Stream is determined by what’s happening inside the business where employee morale is similar to a jet engine compression chamber.

Revenue-To-Profit Conversion Diagram

Safety, quality, delivery, inventory, productivity and cost metrics — combined with customer feedback — are all integral and vitally important to achieving long term business success.

A well-calibrated business, like a fine-tuned jet engine, will effectively and efficiently convert its revenue fuel and resources into profitable energy (revenue-to-profit conversion) while producing minimal waste.

According to The Haygroup, “Organizations in which employees feel both motivated and enabled can achieve revenue growth 4.5 times that of peers.”

Imagine outperforming your competitors by a revenue margin of 4.5-to-1. I’ve often heard managers tell their people to think outside the box. I find it interesting that those same managers often fail to realize that what happens ‘inside the box’ of their own business produces ‘outside the box’ thinking. 

Are you routinely calibrating your business management system to ensure optimal financial performance?