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?”
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- Greg Crabtree
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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
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- 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
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