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CompensationMaster Newsletter Article, Winter 2001 The beginning of the New Year is the perfect time to review
your results from last year, and see what changes—if any—need to be made.
Here are three simple indicators you can check to see if your company is on
track.
First, obtain the following statistics for the past three
years. If you don't already have them at your fingertips, they should be in the
end-of-year information you get from your accountant:
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Total revenue |
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Total expenses |
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Operating profit |
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Sales representatives ranked by production |
Start by simply looking at the trends. Revenue and profit
should both be increasing. Now calculate the percentage increases. Are they
comparable? Revenue and profit should be growing at the same rate. If they
aren't, that's your first indicator of a problem.
Now look at expenses. They should be growing at a slower rate
than revenue—and, optimally, slower than profit. If not, that's a second
indicator. Also look at what expenses are increasing. Are they temporary
investments that will help you increase revenue, or are they permanent?
Finally, look at production levels for your sales force over
the past couple years. Are they fairly stable? If there have been lots of
changes, particularly if revenue is up and profit is not, that's a third
indicator. It may surprise you to learn that significant increases in
productivity, such as those brought about by the Internet or customer
relationship management software, can cause as many financial problems as
market downturns.
How did your company do? If even one of these indicators is
positive, you could have a serious problem. At a minimum, sit down with your
accountant and discuss the numbers. Or call CompensationMaster. You may need to
revise your compensation plans.
Business forecasts for 2001 still look good, but with the
possibility of a recession in the future, this is the time to prepare. Get your
financial house in order now. Then, if and when a downturn hits, you'll be in a
strong position to ride out the storm.
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