There isn’t any magical formula for growing your business at a quick pace. Nonetheless, there’s something that can help you generate profits and keep your business thriving. We are talking about ‘business drivers’.
Today’s business environment is all about creating value, and for that, you need to have a clear understanding of the variables that can truly create value for your business – aka the business drivers.
If you successfully identify all your business drivers, monitor them, and harness them simultaneously, you actually have a good shot at growing your business by leaps and bounds.
Business drivers are the leading indicators of performance, and in this blog, we will explore what exactly they are, how you can identify them, and a few drivers you should know about. Ready? Let’s go!
What Exactly are Business Drivers?
Trying to run a business without knowing what’s working and what’s not – is a bad idea. This is why businesses use multiple metrics to gauge their performance, and these metrics are known as business drivers.
Business drivers are elements that are vital for the success and growth of a business. They are critically important dynamics that build and protect the value of the business.
In simple terms, a business driver is anything that can impact the performance of your business! If a business is performing well in all of its business drivers, it’s a sign of success.
This brings up the question: how would you know which business drivers you need to focus on? That’s exactly what we’re going to cover in the next section. Let’s go!
How to Determine The Key Business Drivers?
There are many internal and external factors that affect the performance of a business, and you certainly can’t monitor all of them. The secret is to focus on the drivers that:
- have a major impact on the value of your business.
- can be managed most effectively.
- are measurable, relevant, and actionable.
- brings growth, costs, and cash flow.
- can be compared to industry standards.
- drives customer satisfaction.
- reflect the performance and progress of your business.
Here’s how you can identify your key business drivers in three easy steps. (After completing these steps, don’t forget to refer back to the criteria we’ve mentioned above.)
1. Review Your Financial Statements
Analyze all three major financial statements – your costs, sales reports, and cash flows. Scrutinize each line of these statements, and find out what drives these lines.
For instance, after studying your revenue report, you might find out that the biggest driver is your number of sales, which is directly related to the number of locations you have. So, you can consider ‘number of locations’ as one of your key business drivers!
2. Collaborate With Your Employees
To get more insights into your financial statements, you need to ask the right questions to the right people. For example, you can ask your content marketing manager if you should consider increased website traffic as a website driver.
All in all, keep communication open with other decision-makers, and always consider their input while making important business decisions – such as establishing the key business drivers.
By the way, Bit.ai has made collaborating with others easier than ever! You and your team can collaborate on a Bit document in real-time by co-editing, making inline comments, accessing version history, chatting via document chat, and much more. How cool is that?
3. Use Benchmarks
All you need to do now is compare your current performance with your past figures, identify patterns, and find out problems areas/areas of opportunities.
This comparison will help you list down your key drivers. You can even analyze data from across the industry. Basically, you can take a look at the business models that your competitors are using, and assess your industry’s data pool.
Every business is different, so the key business drivers will vary from business to business. However, there are a handful of business drivers which have a major impact on every business. Let’s check them out!
List of 10 Business Drivers You Should Know About
Your people lie at the heart of the eleven key drivers. Growing a business relies upon the people associated with your business – whether they’re your employees, customers, or other important stakeholders.
They are the ones who will drive the cash, profit, assets, and growth for your business – so make sure that you meet, exceed, and anticipate their needs, wants, and expectations.
2. Costs & Profit Margins
Just like sales, your costs and profit margins should be tracked every week! Here, you should focus on the key variable costs, such as the cost of materials, and figure out what’s causing them to increase or decrease.
Maintaining a good and healthy gross profit margin is also important. If you notice that your margins are falling, try to pinpoint the root cause, and take corrective action.
Stock turnover rate is basically the ratio of cost-of-sales to stock. Usually, businesses aim for a high stock turnover rate, as it reflects that all the capital resources are being used efficiently.
If you have a low turnover rate, break down your stock figures into different product categories, and try to pinpoint the issue. You might be overstocking or purchasing stock that you aren’t able to sell.
4. Funding & Capital
Funding and capital are one of the most obvious business drivers. It goes without saying that no business can grow without the right form of financial banking – at the right time.
Moreover, if you want to grow fast, you need to have large amounts of funding! Transactions are also a part of this business driver, as transactions represent alliances in the form of strong supplier relationships.
As your business grows, you need to develop a solid infrastructure and keep adjusting it. Infrastructure could be anything from your IT systems and processes to basic office space.
Basically, you have to think about aspects like having enough room for your expanded team, purchasing a machine that takes less time to produce the output, and building new operational systems to maintain efficiency.
6. Inquiry levels
The number of inquiries, leads, and quotes reflects the peaks (or troughs) in your sales. If you want to know which marketing campaigns are working, you can just monitor where the inquiries are coming from.
If you have a well-established inquiry to sales ratio, and you are familiar with the size of an average sale, you can simply use the inquiry level to forecast what the turnover is going to be. It’s that simple!
Every fast-growing business starts with a great idea, which then turns into a business plan or strategy. Your strategy could be anything from bringing an innovative product to the market or remodifying an existing product.
However, the thing is, creating a strategy once and then using it forever doesn’t work. To grow your business, you need to continue developing new products and expanding into new markets.
By properly aligning your operations with strategy, you can increase your business’s ability to succeed.
How? Because you’ll be able to adjust to the changing customer needs, buying patterns, and market trends in a much better way. The moral of the story is to keep your operations highly flexible so you can seize any opportunity that comes your way, and mitigate the threats and risks.
If you have got a large debtors’ book, it shows that all is not well. Bad debts can actually endanger your business, and this is why it is a key business driver that you should monitor.
One of the most effective ways to control debtors is by creating a list of debtors every week that shows which bills are overdue and by how many days. Highlight the most important payments, and take action immediately.
As we all know, technology is transforming the way businesses work. It has enabled businesses to make smarter and quicker decisions, respond to the ever-changing customer needs efficiently, improve business performance, and manage risks.
Technology has brought many opportunities and challenges, and you need to leverage its power to enhance your business and achieve a competitive advantage.
Yes, managing all the business drivers together can be a challenge, especially when the business grows and the organizational structure becomes more complex.
This is why you should constantly revisit each business driver and adjust it. You can inject more capital, add a new kind of employee reward structure, improve the reporting system, or anything else that suits your business.
Businesses that understand and leverage the key business drivers are likely to build a fast-growing, successful business. However, just identifying the key business drivers is not enough.
Yes, you read that right. In order for these business drivers to be useful, they must be controllable, measurable, and manageable. This would save you from driving your business through a chaotic decision-making process!
Got any queries, suggestions, or concerns? Let us know by tweeting us at @bit_docs. We would be more than happy to help you. Cheers!