Learn to identify the key performance indicators that matter most in improving efficiency and maximizing profitability with these bookkeeping tips.
If you manufacture consumer products, you need reliable financial data. From product profitability to inventory turnover ratio, up-to-date key performance indicators (KPIs) will help you get the most from your business.
The challenge is that a modern consumer products operation generates a lot of data in a lot of places. How do you make sure you’re basing critical decisions on information that’s both relevant and up to date?
By using professional bookkeeping support.
Improve Efficiency With Streamlined Data Workflows
The consumer products industry is more fluid than ever. You have to track revenue from multiple sales channels and e-commerce platforms while also accounting for fluctuations in the cost of raw materials and shipping — fluctuations that have become more extreme and more widespread due to disruptions of global supply chains during the COVID-19 pandemic. It’s an ever-changing formula that can obscure true product cost and your overall profitability.
To further complicate the equation, you might be using different apps to track data in different parts of your operation. That can result in a duplication of data in some cases and a lack of up-to-date inputs in others.
A bookkeeping and controller services provider can help you integrate your systems to smooth out data workflows and improve efficiency in your back-office operations. And you just might discover that vital, up-to-date information has been available all along — you just didn’t know where to find it.
Gain Financial Intelligence With Frequent KPI Reporting
Consumer products business leaders frequently analyze their operations using specific financial metrics. Common KPIs include:
- Unit cost: This is the total of all fixed and variable costs required to manufacture a single unit of your product and move it through all of your systems to the point of sale. Depending on your sales volume, tweaks of a few pennies here or there can add up to bigger margins.
- Inventory days on hand: This is a measure of how long your product supply would last if your manufacturing process were to be interrupted. You want to find the sweet spot between a) having enough on hand to overcome a temporary disruption such as bad weather, and b) not having so much inventory that you’re overpaying for storage and other associated costs.
- Inventory turnover ratio: This is a measure of how many times you’ve sold out your available inventory within a specified period. It can provide valuable insights into everything from the speed and volume of your manufacturing process to the effectiveness of sales and marketing efforts.
- Sell-through velocity: Consumer Packaged Goods (CPG) brands selling in retail need to stay laser-focused on how fast their products are turning on store shelves. Velocity needs to be performing at the top of your category and/or increasing over time to open more doors, attract investor capital, and position your company for an attractive exit to one of the larger brands in your space. Typically, it’s measured on a weekly basis and optimized through shelf placement, pricing, promotions, and good brand messaging to consumers.
- Product profitability: This is the big one. It answers the only two questions that matter in the end: How much money are you making, and how can you make more of it? Ultimately, all the other KPIs are measuring sticks you can use to help determine the answer.
You can see why it’s so important to have accurate, timely data when determining your KPIs. Having incorrect, incomplete or dated books can result in a faulty KPI — which can then distort every other KPI, including product profitability.
Safeguard Accuracy and Compliance With Bookkeeping Best Practices
To a large extent, the systems you put in place depend on the nature of your business. There are bookkeeping best practices that can help you operate at maximum efficiency whether your business is primarily e-commerce, brick-and-mortar retail or a combination of the two.
Still, there are universal best practices that you need to follow. These include:
- Establishing an appropriate chart of accounts: Basically, this means you do your books in a way that best reflects how your business operates. If you have 10 different product lines, for example, you need transparency into how each line is doing individually — not just a single bottom line for overall revenue.
- Following generally accepted accounting principles (GAAP): It’s important that your bookkeeper work closely with your CPA to ensure you follow GAAP, including complying with revenue and cost recognition for any subscription discounts, returns or chargebacks.
Meet the Moment
It’s an extraordinary time to be in the consumer products business. Rarely has any sector faced such a combination of challenges and opportunities. With the proper bookkeeping support, you can overcome the former and take full advantage of the latter.
At Supporting Strategies, our experienced, U.S.-based professionals use secure, best-of-breed technology and a proven process to provide a full suite of bookkeeping and controller services. Are you ready to learn how you can move your business forward? Contact Supporting Strategies today.