Key Performance Indicators

3. Costs

Like sales, your costs (and therefore profit margins) should ideally be tracked every week. Many retailers are able to track them daily.

Identify the key variable costs (eg materials), and what causes them to increase or decrease.

3.1 Maintaining a healthy gross profit margin is critically important.

• Falling margins could result from any number of things eg higher input prices, product mix, production inefficiencies and discounts.

3.2 Group different types of cost into cost centres.

• For example, a warehousing and delivery business could split its direct costs into warehousing and delivery. Matching the costs against the revenue for each half of the business would show how profitable each operation is.
• Related overhead items (eg phone charges, postage and stationery) can be lumped together into one combined cost figure.