Section 8: Measuring performance

Variance analysis is imperative to enable to you to measure performance against your budget. Your P&L will enable you to view this at all areas of the business. It is important to measure performance both monetary and by percentage.

The use of this information will allow you to track success and ensure you costs are in line with your budget.

If your revenue is behind your budget then you should expect to see a reduction in your budgeted variable costs.

Example 1:

Actual                                   Budget                    Variance                           %

Revenue                              £50,000                 £65,000   (£15,000)                      (23%)

Cost of sales                       £15,000                 £16,250                     £1,625                            10%

This example shows that you have missed your revenue target by £15,000 / 23%. You should expect to see the same reduction in cost of sales as these costs should be relevant to generating revenue however you can see that the cost saving here is only £1,625 or 10%.

This would demonstrate a lack of control in costs and you will need to review costs accrued in the month which may have lead you to have a lower performance that you had budgeted for.

Examples of management of costs:

  • Diary utilisation – ensure your diaries are efficient and gaps are consolidated
  • Product usage – do you have wastage of products that could be reduced by purchasing in smaller quantities?
  • Discounts – have you priced your treatments too low in promotional discounts that has chipped away are your margins?

Review of the P&L example

Cost of goods: The monthly performance showed an overspend of £1,169 / 10% against an increase in revenue of £3,510 / 8%. This would highlight that it has cost the clinic more to generate sales than what was budgeted for. YTD shows an overspend of £9,948 / 12% on an increased revenue of £21,333 / 7%. This should be investigated to establish why it is costing the clinic more to generate the revenue than budgeted for.

Gross Margin: This shows great control for the month with a favourable variance of £1,986 / 11%. The contributing factor here was the save in labour costs versus budget. For the YTD performance the gross margin is only £5,363 / 4% up which means your costs are eating into the revenue gains you have made and should be investigated using the examples of managing costs above.

Profit / Loss before taxation: The clinic has generated an additional profit for the month of £1,007, when comparing to budget the clinic has generated an additional 1% of profit through cost savings. For the year it shows that costs are well controlled throughout and that the clinic is generating 15% of profit versus revenue which is in line with the budget expectation.