Introduction: the mistake I made when delegating
For a long time, I believed that trusting my teams was enough. As the business grew, I gradually stepped away from some operational roles to give more space to supervisors, managers and directors. My aim was simple: build a business that could operate without me.
Yet several times, I found myself having to step back in to put the organisation on the right track.
Interestingly, the teams were not poor performers. They were capable, committed and hard-working. The problem was not the people. It was much simpler: we had not clearly defined what a good decision for the business looked like.
Managers therefore made decisions that were perfectly sensible operationally, but sometimes damaging economically.
That was when I understood something fundamental: trust alone is not enough. Effective delegation also requires a compass.
That compass is provided by KPIs.
Contrary to what many imagine, KPIs are not there to monitor employees. They are not there to punish or control. Their purpose is more constructive: to make visible what we do not naturally see.
Why KPIs become essential as a business grows
In a small business, the owner often feels they can see everything. They know the customers, orders, costs, teams, urgent issues and everyday problems. Their intuition is usually enough to make sound decisions because they remain close to every part of the operation.
But as the business grows, that intuition gradually reaches its limits. As teams expand, each manager naturally begins making decisions according to their own professional priorities. The logistics manager wants simpler delivery routes, the head chef wants secure stock levels and the salesperson wants more signed contracts. Individually, each is acting logically.
Problems arise when nobody measures the combined impact of those decisions on profitability. A decision may make operations easier, reassure production or help sales, while harming the business’s financial balance.
That is where KPIs become essential. Without shared indicators, everyone uses their own definition of “good”. With clear KPIs, everyone understands the direction, the boundaries and the actual consequences of decisions made in daily operations.
The first KPI: the sales-to-purchases ratio
In our catering business, the sales-to-purchases ratio is one of the first indicators I monitor. It helps me understand whether what we sell is consistent with what we spend on goods. Too many owners look only at revenue, assuming that rising sales must mean a healthier business. My experience taught me otherwise: a business can sell more while reducing profitability if it does not control its raw-material costs.
At Traiteur Géraldine, I calculate this ratio simply: revenue divided by purchases of goods. The formula is:
Sales-to-purchases ratio = revenue ÷ purchases of goods.
If I sell a product for €3.50 and the goods needed to produce it cost €1.00, the ratio is 3.5. Each euro spent on goods generates €3.50 in revenue. That is the level I target in our model.
When the ratio falls towards 3.2, I see it as a warning. But a KPI is not a verdict. A lower ratio does not necessarily mean someone has done a poor job. The KPI does not supply the answer; it raises a question. My job as a business owner is to understand what that figure is telling me.
The first thing I check is stock. Teams may have bought extra goods to prepare for upcoming days or events. The ratio can then deteriorate temporarily because purchases have been brought forward, rather than because actual margins are poor. I check with the head chef whether stock has increased and whether that increase relates to planned activity. If so, the figure needs careful interpretation.
If stock does not explain the fall, I look at waste. Poor quantity management, production errors, kitchen losses or insufficient planning can quickly weaken the ratio. The aim is not to find someone to blame, but to take corrective action: improve recipe costings, adjust production quantities, strengthen checks or revise production methods.
If neither stock nor waste explains the problem, I examine purchase prices. In our sector, prices can change quickly. A supplier increase can reduce a product’s profitability before anyone notices. I then need to renegotiate, find an alternative product or adjust our selling price if the increase persists.
Finally, if purchases are consistent and supplier prices have not changed, I look at sales. An event may have been underpriced, or some costs underestimated when preparing the quote. This is where the KPI is particularly useful: it connects a sales decision with its actual effect on profitability. Strong revenue is not enough if the margin is missing.
That is why I see this ratio as an indicator of clear-sighted management. It forces us to look beyond sales volume. It helps us see whether prices are right, purchasing is sound, production is disciplined and sales decisions reflect operational economics.
The ratio is therefore a tool for understanding, rather than surveillance. It helps us ask the right questions before problems become too large.
The second KPI: the payroll-to-revenue ratio
If there is one indicator I check first when opening my dashboard, it is the payroll-to-revenue ratio. Many business owners are surprised. They expect me to begin with revenue or cash flow.
But after more than ten years running a service business, I learned something essential: where people create the value, staffing costs are often the factor with the most direct impact on profitability.
This ratio measures the share of revenue absorbed by payroll costs. I calculate it by dividing all the company’s payroll costs by revenue, then multiplying by 100 to express it as a percentage.
Payroll-to-revenue ratio = (payroll costs ÷ revenue) × 100%
For example, if revenue is €100,000 and payroll costs are €28,000, the ratio is:
(28,000 ÷ 100,000) × 100 = 28%
At Traiteur Géraldine, I consider 28% consistent with our business model. When we approach or exceed 31%, something needs closer analysis. Again, that does not mean the teams are working poorly. It means an imbalance is emerging somewhere in the organisation.
Many owners mistakenly assume a high payroll ratio must be a staffing problem. Experience taught me that reality is more complex. When the ratio rises, I do not first turn to the teams. I try to understand what the figure is telling me.
One explanation may be salary increases linked to inflation or indexation. Employees have not changed how they work, yet payroll costs rise automatically. If selling prices do not keep pace, profitability gradually weakens without anyone really noticing.
Another explanation may be lower productivity. In a business like ours, a few lost minutes on each production run can add up to dozens of hours over a month. This is particularly dangerous because it is often invisible day to day. Each employee feels they are working normally, but many small inefficiencies eventually weigh heavily on results.
I also look at absence and illness. A difficult period may force the business to maintain certain costs while temporarily losing production capacity. Here again, the KPI helps detect the financial impact early.
But one of the most revealing causes is often in sales. Sometimes an event is quoted with an inaccurate estimate of working hours. The teams do their jobs perfectly, yet if the quote allowed ten hours and fifteen were actually needed, the payroll ratio deteriorates immediately. The problem lies neither in the kitchen, logistics nor service, but in the estimate made at the point of sale.
That is why I see this ratio as a management indicator, rather than a control tool. It helps assess whether the value the business produces is consistent with the staffing resources required. It also identifies deviations before they become structural problems.
I particularly value how this indicator connects every department. Sales affects it through quotes. Operations affects it through productivity. HR affects it through team management. Leadership affects it through organisational choices. Everyone contributes to the final result.
That is why I always check it first. It gives me an immediate view of the balance between activity delivered and resources used, rather than monitoring employees. When under control, it is often one of the best indicators of overall business health.
The third KPI: operating profit
If I could keep only one indicator to manage my business, I would choose operating profit without hesitation.
That often surprises business owners. Many immediately think of revenue, cash flow or accounting profit. Yet over the years, I learned that these can sometimes give a misleading picture. Operating profit helps me answer the essential question:
Is the core business profitable in its own right?
To understand why it matters, we first need to distinguish operating profit from accounting profit.
Accounting profit is the company’s final result after management’s decisions. Depreciation, financing costs, exceptional items and the consequences of strategic choices can affect it without necessarily reflecting day-to-day operational performance.
Operating profit focuses on the business’s everyday activity. It measures whether what teams produce, salespeople sell and operations deliver actually generates value.
In simplified terms:
Operating profit = revenue − operating expenses
Operating expenses include goods, wages, day-to-day running costs and the costs required to deliver services.
Take a practical example.
A business generates €1,000,000 in revenue.
Purchases of goods amount to €300,000.
Payroll costs amount to €280,000.
Other operating expenses amount to €320,000.
Its operating profit is therefore €100,000.
The activity generates €100,000 before considering investment decisions and more complex accounting effects.
That is the figure that interests me.
Why?
Because it tells me whether the day-to-day operation is working properly.
During my years in management, I saw businesses report positive accounting results while their core activity was loss-making. That may seem paradoxical, but it is a reality I encountered frequently.
An owner can inject personal funds, obtain bank financing, postpone investments, sell an asset or find other ways to sustain a situation that appears healthy.
But none of those actions solves the underlying problem if the activity itself is not earning money.
Conversely, a business may temporarily report a low accounting profit despite strong operational performance, particularly while making significant investments for future development.
That is why I always examine operating profit before moving on to other strategic considerations.
When it is positive, I know the fundamentals are sound. Teams are creating value. Operations are under control. Sales decisions are broadly consistent.
When it deteriorates, I know immediately that we need to investigate.
The question is no longer whether the bank balance is comfortable or revenue is still rising. It becomes:
Why is the activity no longer generating enough value?
This is where the previous two KPIs become particularly meaningful.
Falling operating profit may reflect a weakening sales-to-purchases ratio: raw materials cost more, selling prices are too low or waste has increased.
It may also reflect a higher payroll ratio: wages rise faster than the value produced, productivity falls or some services are underpriced.
Ultimately, operating profit reflects the choices made throughout the business. That is why I consider it the most important KPI.
It also helps me make decisions with greater confidence. Personally, I avoid major investments until operating profit is satisfactory. I believe operations should first demonstrate the ability to generate sustainable results before management commits to new projects.
This approach helped me avoid many mistakes. It also taught me a fundamental lesson: a business can survive for a long time through financing, loans or capital injections. But it becomes truly strong when its activity can fund its own development.
That is exactly what operating profit helps me assess.
If I had to choose a single KPI tomorrow, this would be it. It is not necessarily the simplest to track, but it tells me the most complete story about the underlying health of the activity.
The question every business owner should be able to answer
Over the years, I noticed something striking in conversations with entrepreneurs. Most know their revenue almost instantly. They know what they invoiced last month, how many quotes are in progress and how far they are from their sales target.
Yet when I ask a more important question, silence often follows.
What is your break-even point?
In other words, how much do you need to sell before you start making money?
That simple question is central to the owner’s role. A business does not become profitable merely by selling more. It becomes profitable when it sells enough to cover its costs while retaining sufficient margin to generate a profit.
Take a deliberately simplified example.
Imagine a business with these monthly costs:
- €20,000 in payroll costs
- €3,000 in rent
- €2,000 in vehicle costs
- €1,000 in insurance
- €4,000 in miscellaneous expenses
Its fixed costs therefore total €30,000.
Now suppose it retains an average 30% margin on sales after paying for goods.
To cover €30,000 in fixed costs, it must generate:
€30,000 ÷ 0.30 = €100,000
Its break-even point is therefore €100,000 in revenue.
Below that amount, the business loses money.
Above it, the business starts making money.
Explained this way, the concept seems obvious. Yet many owners run their businesses for years without knowing the figure precisely. They watch the bank account, revenue trends or orders without really knowing the level at which the activity becomes profitable.
That is why KPIs are essential. They turn impressions into measurable realities, support intuition with concrete data and help us make decisions while understanding their economic consequences.
For a long time, I believed experience and intuition were enough. Looking back, I now think they are essential, but become truly powerful when supported by reliable indicators.
Ultimately, an owner’s role is not simply to sell more. It is to understand what to sell, at what price, with which costs and which organisation, to build a sustainable business.
It all begins with a question every business owner should answer without hesitation:
What is my break-even point?
KPIs do not replace people
One of the biggest mistakes is using KPIs to control or punish. An indicator should never become a weapon against teams. If it is used only to point out mistakes, assign blame or apply pressure, it immediately loses value. Employees begin to fear it, work around it or distrust it.
In my view, a KPI should remain a starting point. It draws attention to a situation but never tells the whole story alone. Falling customer satisfaction does not automatically mean poor service. A customer may have misunderstood the form; there may have been an isolated incident or an unclear expectation—or a genuine operational issue. The figure tells us to investigate. It does not yet provide the conclusion.
That is why I prefer to use KPIs as tools for dialogue. When an indicator deteriorates, the right question is not “Who did a poor job?” It is “What explains this change?” That distinction makes all the difference, moving us from judgement to understanding.
KPIs never replace experience, listening, discussion or operational analysis. They simply help us ask the right questions earlier. In a growing business, asking the right questions at the right time can prevent many problems.
Conclusion: trust enables delegation; KPIs give it direction
Looking back, KPIs played an essential role in how I led. They helped me step back without losing visibility over the business. They also helped me delegate better by giving teams a clear direction, rather than leaving them to manage alone.
Trusting your teams is essential. But trust alone can become risky if everyone has a different interpretation of a good decision. A manager may want to protect their department, a salesperson may want to close faster and an operations team member may choose the easiest solution. Everyone can have good intentions while gradually moving the business away from its economic reality.
KPIs align everyone around shared reference points. They help teams understand the actual impact of their decisions. They also mean the owner is no longer the only person carrying the business’s financial perspective.
That is why I see KPIs as tools for sharing understanding, rather than surveillance. They help teams make decisions in my absence that follow the same direction as those I would make.
Trust enables delegation. KPIs give it the right direction.
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