benchmarking
Welcome to our flashy new results interface. Part 1 – the annual report
We’ve been working with Nothingrinder for the past couple of months to bring you a much improved benchmark results interface within MyCake. Here’s a preview of what’s now possible.
The annual report
The annual report set of graphs shows you your Profit & Loss sheet as a bar chart. It starts with the top level of information … income, cost of sales, profit, indirect costs and profit.
From this page you can either benchmark your company at this level or you can drill down to more detail on each of these key areas.
Benchmark top level – net profit
… in this example you can see that the top quartile (best 25%) have a net profit of some 54.5%. In this example you can see that the users’ net profit of 31.2% is at least above the average of 22.8% … so in the top half but not the top 25% asks the question of whether they could do better?
Benchmark detail – income
If the questions are “how am I doing and how can I do better?” then we probably need to drill down to more detail. In this example we’ve picked the income line to look at and see how it splits out into the main sales income, any grants received and ‘other’ income (typically expenses charged to clients, non-core products, interest on bank deposits etc).
Some sections of the P&L have more drill down levels than others so at each stage you’re asked if you want to benchmark at this level or drill down further. You know you’ve reached the deepest darkest level when you’re only given a benchmark!
We thought this ability to benchmark at a top level as well as in great detail would be useful for the times when you just need a rough answer to the question of what do others do and how do you stack up? Of course if you’re looking at ways of making cost savings for example you may well want to drill down into just one line of indirect costs … to see what others spend as a proportion of income on an area like travel.
So what might you do as a result of reading this … try this:
- pick a completed year of data (say 2008 or 2009)
- look at what your split of income was across sales:grants:other
- see how these ratios compare to the best, worst, average and top quartile for the whole of the MyCake user base
- sit down with a cup of tea and have a think about what ratio would be good for you to aim for in the rest of the year and 3-5 things that you’ll do differently to help you make this shift (perhaps charging more expenses to clients, finding ways to add some new products into people’s standard orders etc).
In the next instalment we’ll walk you through the What If? calculator to show you how you can use past information to help you plan for the future.
Going for investment: demonstrating best in class performance
OK, so here’s the scenario … you’ve been growing the business for the last few years and you’re at a point where you want to attract investment from Angels or VC’s.
Investors can be a fairly demanding bunch when it comes to asking for financial forecasts, profitability and productivity information, exploitation of Intellectual Property for commercial gain etc. If you’re not prepared for it you can find yourself fighting with spreadsheets until the wee hours trying to extract information from a dozen different places.
MyCake can help you with this work, at least in the early stages when you’re talking about things like:
- the sector you are in … and therefore demonstrating why you are the best in class
- working out the impact of losing key clients ie how vulnerable you are to change that you can’t necessarily predict or control
- working out the impact of rapid growth … how overstretched your resources would become, how much growth you’d need to deliver before you could justify increasing the headcount etc.
As part of the benchmark capabilities, not only can we show you where your company sits vs the best and worst in class amongst the rest of the MyCake user base, but we can help you use your own financial information to play out some of the “what if” scenarios without needing to devise or reconfigure complex spreadsheets.
This short video shows you how …
Turnover & Indirect Costs
This post is a complement to the analysis undertaken for Artquest in the March – May 2010 newsletters. For more details on our partnership with Artquest click here.
Remember – a short column is a good thing in this graph … you don’t want to spend too much of your income on your overheads!
The lesson in here is a simple one – there are some folks who are either in start up phase or have some investment so their cost base exceeds their income (anything over 100% on the graph). This is clearly unsustainable in the long term so the ones to emulate are those in yellow (ie with higher income) and in the average or minimum clusters on the graph.
Sounds daft but you don’t want to be in the brown column in the maximum section as this means you have very little income and yet your costs are way high!
If you’re a MyCake user you can benchmark your own data (rather than just look at these general results) from in the results section of the benchmark. See this post for a how to guide to reading your results.
Turning boring business data into brilliant business plans
I recently joined Darren Fell of chartered accountants, Crunch, for a podcast with Andy White at Freelance Advisor to discuss how valuable your business data can be when compared with your colleagues and competitors.
We looked at how, with the innovations in software as a service models it is now possible to (easily, simply and pretty painlessly) compare your business finances confidentially to others in your sector. We went on to explore what the benefits of this in terms of setting day rates, investing profits back into R&D and we conclude with a few action points for anyone who currently has book-keeping software (or an excel sheet) that they hate and wants to make their life easier both in terms of inputting the data and interpreting the results.
To hear the full podcast and read the transcript, click here.
Turnover & Production Costs
This post is a complement to the analysis undertaken for Artquest in the March – May 2010 newsletters. For more details on our partnership with Artquest click here.
One of the things we’ve noticed as we analyse the 2008-9 data is that there is a dramatic difference between the profitability of the product based creative businesses that use MyCake vs. the service based ones. Whilst the average profitability across the whole user group is about 28% of income this disguises the real picture
- product based businesses who spend more than 35% of their turnover on materials end up with about 2.5% profit
- service based businesses who spend under 10% of their turnover on production costs end up with closer to 40% profit
The graph below shows that the businesses with the lowest turnover (the brown columns) are the main culprits when it comes to spending too high a percentage on production materials. That is to say that those who can least afford it are tying up resources they can’t spare!
Remember – in this graph a low figure (ie short column) is good!
If you’re a MyCake user you can benchmark your own data (rather than just look at these general results) from in the results section of the benchmark. See this post for a how to guide to reading your results.
Correlating hourly rates and turnover
This post is a complement to the analysis undertaken for Artquest in the March – May 2010 newsletters. For more details on our partnership with Artquest click here.
The graph below shows the 2007-8 MyCake benchmark data. That large blue & yellow columns shows that the folks with the best income are also the ones who charge the highest hourly rates.
In the blue columns we have the overall benchmark across all MyCake users.
In the brown columns we see the average, max & min hourly rates for businesses with a turnover of less than £10,000.
In the yellow columns we see the average, max & min hourly rates for businesses with a turnover of over £50,000.
If you’re a MyCake user you can benchmark your own data (rather than just look at these general results) from in the results section of the benchmark. See this post for a how to guide to reading your results.
How to read your benchmark – a guide
This post is a how to guide for all those folks who’ve clicked on the Facebook ad and are wondering what they might get out of a comparison of their last years business finances plus all the MyCake users who’ve been receiving ‘your data has been approved’ messages and are wondering how to look at the benchmark for the quarter or year concerned.
To benchmark with MyCake you need an account and to have submitted your financial data. Once it’s approved here’s what you can access:
What’s in the benchmark report?
Benchmarking allows you to compare your financial information anonymously and confidentially to the rest of the MyCake user base. For example you can compare how your ratios of gross profit (sales minus cost of goods), net profit (sales minus cost of goods and minus indirect costs) compare for that quarter or year to the average, best, worst and top 25% of all other users.
You can use a benchmark to gauge how successful you’ve been relative to other businesses like yours (in terms of sector or age of business).
If you click on the ‘results’ button at the top of the MyCake dashboard you’ll see this screen…
From here you can pick the set of benchmark results you’d like to see. There’s plenty to look at in the 2008 annual data set so we’d suggest you start here. As you’re probably all too aware cash flow can make a quarterly P&L look pretty variable whereas the annual view is usually a bit more even.
So pick the period from the drop down and then click on either of the two grey buttons at the bottom. We’ll now look at the reports as they appear in the menu list at the top, starting with the graphical results in slice 1 first…
Slice 1 – the overview
In this view we’re showing you some basic metrics – gross profit, indirect costs, net profit etc. The thermometers are set to show green for generally healthy levels, yellow for things that probably need a closer look and red for things you should definitely investigate further.
To see your figures use the blue vertical scroll on the left, and at the bottom of the list you’ll find your own data set. Along the way you’ll see that you can also look at the average, maximum and minimum for the whole MyCake user set as well as a smaller section of users based on the ‘group’ you joined when you signed up. So if you’re affiliated with partners such as Artquest or Cockpit Arts you can compare yourself to just this crowd.
For those of you who enjoy a few columns of numbers in the mix we also show you these basic metrics in figures - again with the same ability to select different things to compare yourself to in the drop downs.
Slice 2 – The detail
There’s only so much we can show visually and at some point we need to revert to columns of figures! This section shows how your figures compare as a full profit and loss sheet. We show all the costs as a percentage of turnover so that we can give you comparisons across businesses of different sizes and scales yet still compare apples to apples.
As a place to start why not compare your split between main income stream and ‘other income’ against the average for the whole MyCake user base.
Next you could look at what proportion of your turnover you spend on what’s called ‘direct costs’ – this means the amount spent on production materials and any freelancers/sub-contractors who work on the production of goods and services. If, when you look at this you think that you would like to re-allocate some of your cost headings, do talk to Marion (see support) who will be happy to help you through this.
We’d expect that those who sell their time will have quite low direct costs (unless there are a lot of freelancers involved) whereas those who make objects will have a higher direct cost base (but it still doesn’t want to exceed 40% of turnover absolute max).
Next you might go on to look at where your major indirect costs are … where is the highest percentage of your turnover spent? Travel, professional fees, rent etc?
Again see how this compares to the norms.
Towards the bottom of the page you’ll see the net profit line as well as the drawings and pension lines. Go on! We dare you!
Slice 3 – What if?
By this point we hope you’re starting to ask questions about what you could do differently going forward both in terms of income growth and changing expenditure. The third view enables you to play with your data a little and ask ‘what if’ questions.
You’ll find that on this page your figures have been turned into a flow diagram with income and direct costs on the left, through to profit on the right. The dial on the left allows you to see what happens when you increase sales. The dial on the right shows you to see the impact of increasing your drawings. The sliders in the middle allow you to play with scenarios where you increase or decrease major costs such as marketing, staffing etc. Don’t forget to pick your data set from the drop down list in the top left!
So you could consider what would happen if you increased your marketing spend by 10% and then looked at how much you’d need to increase your income for it to have been worth it (by worth it we mean more net profit at the end). You might consider what would happen if you moved into larger premises and therefore had to increase the amount you spend on rent.
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You might also find this post on comparing hourly rates useful … not least because we provide some general benchmark results as well as an overview of what this means.
There are plenty of possibilities and if you’re wanting more guidance, then do book a 1:1 session with MyCake and we’ll help you interpret the information.
We’ll also keep posting on the blog about what we’re seeing in the overall results and you can compare this to your own data set.
Ellen’s views on the 2008-9 benchmark data
Ellen O’Hara, Head of Business Development, Cockpit Arts and Sarah Thelwall, Founder, MyCake had a long chat about this year’s benchmark data over lunch this week and Ellen kindly agreed to pitch in with a contribution based on a comparison of the MyCake post on jeweller’s and her own experience with the data they gather from Cockpit members. The post below can also be read as a commentary on this post which compares the finances of designer makers and artists.
Some interesting observations here – many of which are supported by Cockpit’s own research into the business models employed by its studio holders. Jewellers actually make up the biggest percentage of studio holders at Cockpit (22%), followed by textiles (16%) and ceramics (14%), so I’ve had a look at how each of these are doing and what we can learn:
Jewellers
We hold data on a similar group of jewelers to mycake – all sole traders, a mixture of precious and semi-precious, representing businesses at all stages of their career, including some part time businesses. The main difference seems to be that a higher percentage of our guys outsource manufacture – nearly half.
Our figures also show that, generally speaking, those with relatively high production costs are either gem and/or gold based jewelers. Or they are jewellers with relatively low levels of turnover (below £20k), but who are still investing in stock. These tend to be either part-time business (and have an income from elsewhere), or start ups.
Textiles
Our research shows that textile businesses, along with jewelers, are among the best performing businesses at Cockpit in terms of overall levels of turnover and profit, and growth. Our sample includes sole traders and partnerships, again ranging from start ups to established businesses.
The model here tends to be slightly lower gross margins, but higher volume of sales generated through a combination of wholesale orders, and direct sales via e-shops and selling events to the public. The majority of these businesses fall under the printed textiles banner, producing homeware and stationary, and tend to outsource a large percentage of production.
Ceramicists
All of our ceramicists are sole traders with some catering for the fine market, some for the craft collectors market, and others the high end gift and interiors markets.
We’re afraid to say that these guys seem to be facing the biggest challenges in terms of sustainability and growth.
Despite the lower absolute cost of materials, direct costs are up to 60% of turnover for some start ups and up to 36% for some more established businesses. This means that profitability and productivity tend to be lowest within this discipline.
What do the best performers have in common?
What’s clear is that the most successful makers are employing a diversity of business models and strategies. 84% have a strategic business plan, which includes detailed financial forecasts and budgets, and their business model is fit for purpose.
All have a strong USP, good profile in their chosen market place (however niche), and robust business processes.
The most profitable businesses are split between:
1. Those with higher gross margins, who tend to sell smaller volumes at higher prices and generate sales through a mix of private commissions, direct sales (with Open Studios and other high profile shows such as Origin and Goldsmiths), supported by some gallery / retail outlet sales. For this group, direct costs are a lower percentage of turnover (no higher than 26%), with the mode being just 15%. They become sustainable at around the £60K turnover mark.
2. Those who rely on a higher volume of sales tend to outsource production, and reach their market via trade shows, have a greater dependence on wholesale orders and on-line sales, and take on fewer private commissions. Evidence suggests that turnover needs to higher in order to be sustainable at around the £100k+ mark.
So in addition to Sarah’s sound advice, I would add:
1. Consider gross margins when developing your new pieces and collections. Be aware of which products (or services) offer the most profitability and use this to inform your sales plan.
2. If you can’t increase your margins and need to go for volume sales, ensure you have the production capacity to cope with this level of activity. Explore different options – outworkers and batch production, outsourcing to a factory, collaborating with a partner who does have the production set up, or licensing. Efficient production also means you are more likely to cut down your lead times, which will help encourage repeat orders and respond to those retailers who are employing a ‘just in time’ approach to placing orders at the moment.
3. Being visible is important, but don’t fill galleries with SOR stock at the expenses of your cash flow unless you know from experience the work will sell and you’ll be paid in a timely fashion. If you are a precious metal or gem based jeweler – consider SOR as a pr activity as opposed to relying on it as income – and be discerning about the outlets you choose to stock. Do keep regular stock takes and pull your work out of outlets that aren’t shifting your work within 3 months (6 months max).
4. Introducing a less precious range, or using a mixture of materials, may be a way of increasing overall profitability. Similarly, you may be able to add value by introducing more ‘precious’ materials, or introducing optional product pricing and offering additional extras to bump up the value of each sale.
5. Marketing budgets are interesting one. On the one hand, if profits are being squeezed then you may need to shave costs. However, this should not be at the expenses of sales. Use a system like Mycake to conduct a cost / benefit analysis of the different marketing activities you engage in – how does the investment compare with the sales (and pr) gained, and under what timescale (in other words, what is the return on this investment and how long does it take to reap rewards?) Could some, or all, of your limited budget be put to better use?
Overall improving you financial literacy needn’t be scary and crunching the numbers can actually be really satisfying once you know what you’re looking at.
Cockpit will be providing plenty of financial related support in 2010, so keep an eye out for our business and professional development events programme.
The importance of the feedback loop
We’ve had an amazing week on the blog here at MyCake and it’s got us thinking about that perennial challenge of how you ensure you gain enough feedback to see which bits of activities like marketing are working. Ok, so strictly speaking we’re deviating from our usual territory of financial management but it’s a benchmarking thing honest 
There are a couple of things to focus on here:
- planning in feedback mechanisms at the start
- actually looking at the feedback and using it to inform your business decisions going forward
The former is a marketing planning thing, the latter is about setting internal benchmarks and using them … so we’ll concentrate on the latter (despite the temptation to deviate into marketing).
In all likelihood you’re undertaking several different marketing activities at once so the challenge will be deciphering which ones are delivering which results. But first of all you need some criteria to track so that you can notice the changes. What should you look at? At one end of the scale there’s the hard metric of more sales … I mean, ultimately if you’re spending money getting your businesses name out there it needs to lead to a mechanism that pays for it! At the other end of the scale there’s stuff around how your company is perceived, whether good people aspire to work for you etc. Both are measurable, dare we say equally measurable … measurement is good!
Here are a few things you could keep tabs on and mechanisms for getting the feedback:
- New clients (ask them how they found you)
- More business from existing clients (ask them why)
- Uplifts in the above which occur immediately after new marketing activities e.g. PR coverage, print & postcards
These sorts of things pretty much speak for themselves but it’s not always as easy as counting the cash. The advantage of digital marketing is that evaluation tools tend to come as standard for example:
- Web & blog statistics – what really counts is the numbers of unique visitors (tools are easily added on if they don’t come as standard)
- Click throughs from emails (email marketing software builds this in as standard)
- Click through from web-adverts (again, the big guys like Google & Facebook build this in as standard)
The challenge with this lot is:
a) working out what good is for your sector
b) working out what the conversion rate is from traffic on the web to sales.
I mean if you spend £50 on marketing and it only results in £20 of sales it ain’t a route you should pursue much further. That said there is usually a lag between the development of familiarity with your brand and new sales. Just because you weren’t flooded with orders in the first month doesn’t mean you should abandon it! So, you evaluate these things much as you’d evaluate whether a conference or trade fair is worth attending … by doing a bit of research, talking to others who’ve tried this route and comparing your market to theirs. We’re not going to benchmark this sort of thing formally through the services on MyCake but we’ll happily collect responses to this post with people’s views on what ‘good’ is for the various types of marketing activity you’ve tried. To get things going here’s what we’ve learnt from our own promotional activities and from conversations with other creative businesses:
- A successful blog attracts about 10,000 visitors a month and it takes at least 12 months of regular new content and links to other good blogs to get to this point
- An email marketing tool such as Constant Contact will cost you in the region of $12-25/month for campaigns & communication to 500-2500 email addresses. You will see immediate spikes in the content your email links to but it’s probably only 10% of your database who will respond at any one time.
- Short term price offers or other incentives can deliver pretty immediate uplifts in sales. You will do better if you have multiple methods of telling people about the offer. Remember that one of the benefits that you want from this is the improvements in cashflow as well as turnover so structure your offer so that the quicker people pay the better it is for both of you … it’s the reason we offer a discount for the annual payment but not on the monthly payment for MyCake. Depending on your products & services you could see 20-30% of your turnover during key periods (Christmas for example) so activities which encourage greater spend in your markets key periods should work to your advantage.
- You’ll probably have seen the MyCake postcards around London and in studios & creative spaces around the country. We’ve printed about 15,000 so far for the grand sum of about £400 and it’s probably our best tool so far.
- We’ve just started playing with our first Facebook advert … we’re spending about £1/day to gain adverts on some 4,000-6,000 facebook pages (a target audience of about 100,000 based on the key words we’ve picked) and so far we’re seeing about 5-10 click throughs to the site … three days in it’s too early to tell what that might turn into. Our friends at Time Etc reckon that Facebook didn’t work for them but Google Adwords bring them regular new clients.
What are your experiences of marketing activities you’ve tried and the results you’ve achieved?
What is benchmarking and how can it help you?
As our next MyCake training session is on the subject of benchmarking perhaps it would be useful to rewind a little and look at the benefits of benchmarking to you and your business.
What is benchmarking?
… any process that allows you to compare your business to others in your sector. For example the Design Business Association offers an annual benchmark survey which collates responses from about 100 businesses in the Design sector and gives a report to the members. MyCake offers benchmarking to all users as we enable you to compare your financial information to the average, maximum, minimum and top quartile calculated across all users.
Instead of having to trawl through a report and try to remember what your spend is say on travel and compare it to the categories we simply show you your figures against the aggregate so that you can immediately see where the differences are. In the image to the right you can see the first level of benchmarks that appear in the MyCake dashboard as you login.
… so benchmarking offers you a diagnostic tool to make comparisons anonymously and confidentially between your business and others with a similar profile (sector, size, age of business, target customers etc).
… these sorts of diagnostic tools allow you to analyse your strengths and weaknesses so that you can plan your growth and development. In the case of MyCake we enable you to use your financial information to help you make decisions.
What sort of things should I benchmark?
Well simplistically … your income and your costs are both good things to compare. In a bit more detail how about benchmarking:
- your total income by comparison to others in your sector … answering the question of ‘how am I doing vs. others like me?’
- the split between your main income sources and various peripherals … answering the question of ‘how focussed is my business?’
- your expenditure on key costs – first identify the top five areas of expenditure your business (you can do this in the reports in the book-keeping side of MyCake as well as in the benchmarking analysis) then look to see how this compares in the benchmarks. We’ve also produced a benchmark bulletin for micro businesses to give you a few rough guides on this.
- your profitability … this is a great way to look at what you’re creating in terms of the future sustainability of the business and your ability to invest in the business’ growth going forward (it’s profit that pays for research and development after all)
- your growth rate … how fast do small businesses normally grow and how are you doing by comparison? Wouldn’t it be great to answer this question!! MyCake can give you a few rules of thumb for helping you to plan the early years but the more data you input the more years you can make comparisons for.
And last but not least, as a way to start using this information to plan your future why not have a look at our ‘what if’ dashboard … dials that turn, sliders that slide … all sorts of fun to play with!
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If you’re interested in your own benchmark data and want to book a one-to-one session on 17th November 2009 at the Institute of Directors in London, please email marion at mycake . org. There is a small fee of £10 per booking.
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