Let the Right Numbers Tell the Right Story

Finan­cial reports can be works of art: thor­ough, detailed and accu­rate. But they usu­al­ly don’t tell you what’s real­ly going on or how your busi­ness is real­ly per­form­ing. They’re not designed, from a man­age­ment per­spec­tive, to help lead­ers to make good decisions.

Accord­ing to Greg Crab­tree – known for cre­at­ing the Labour Effi­cien­cy Ratio (LER), which is designed to mea­sure, ana­lyze, and opti­mize labor pro­duc­tiv­i­ty – the data can be sim­pli­fied to give your team gain greater per­spec­tive and to make deci­sions that guide your busi­ness to its best profitability.

Dur­ing a recent inter­view, we talked about our shared phi­los­o­phy of sim­plic­i­ty and how a sim­pler view of report­ing the right num­bers can help com­pa­nies to scale.

Greg’s new book Sim­ple Num­bers 2.0 is a fol­low up to his pre­vi­ous book, Sim­ple Num­bers, Straight Talk, Big Profits!

“My num­bers need to tell me:

Where have I been? Where am I at? Where am I going?”

- Greg Crab­tree

The Right Numbers

The right num­bers tell a sto­ry that’s not a moment in time, but an arc of time.

And that starts with know­ing your true eco­nom­ic top line: not your rev­enue but your gross prof­it, which is rev­enue minus cost of goods sold, with­out any labor.

“If you…make that one cal­cu­la­tion across all busi­ness­es and treat it (your gross prof­it) as the top line of the busi­ness,” says Greg, ​“you actu­al­ly put every busi­ness on an equal play­ing field of comparability.”

Hear more about that part of our con­ver­sa­tion here.

The Sim­ple Num­bers P&L

To get a clear pic­ture of your engine and your chas­sis (as Greg puts it), all indus­tries, all busi­ness­es need a sim­ple num­bers P&L, with only eight lines of data:

The Engine

• Rev­enue
• Cost of goods sold
• Direct labor is the engine of the business.

The Chas­sis

• Facil­i­ties
• Mar­ket­ing
• Man­age­ment
• Labor, pay­roll
• Tax­es & Benefits

Peo­ple either don’t have enough insight into the true per­for­mance of their busi­ness, or they have so much infor­ma­tion it’s hard to see what’s real­ly going on.

Greg’s approach and mod­el gets down to the basic things that you need to look at, to under­stand how your busi­ness is per­form­ing, as a base­line. His unique way of strip­ping out all your labour and look­ing at your Labour Effi­cien­cy Ratio gives a pow­er­ful view of almost every business.

The Chal­lenge

• If you were to get clear­er finan­cial insight into in one area of your busi­ness, what would it be?

Here are some clips about how to cal­cu­late the cost of labour:

Strip­ping out Gross Labour Costs

Labour as an Over­head Cost

Sim­ple Num­bers P&L

…and a link to the full inter­view. 

Oth­er Blogs

• Get­ting Big­ger & Bet­ter with True Growth
• Prof­it = Intel­li­gence + Discipline
• Does Your Strate­gic Plan Real­ly Dri­ve Growth – or Just Improvement?

Old­er Podcasts

• Prof­it vs. Mar­ket Share