A Dictionary of Terms Used in this Site.

Benchmarking: Identifying the best practices of your industry, your competitors, or admired companies, and identifying key metrics to measure in your company that will allow you to implement those best practices successfully. Remember the adage: "anything you measure, improves."

Best Practices: Standard procedures and methods employed by excellent companies that are recognized as leaders in their field or industry; used as part of a benchmarking exercise.

EBITDA: Earnings Before Interest, Taxes, Depreciation and Amortization.

Gross Margin: Selling Price minus Cost of Goods (COG). Can be used to describe a dollar amount or a percentage. For a product selling for $75.00 that costs $50.00, the gross margin dollars = $25.00 and the gross margin percentage (usually just called gross margin) = 33.3%.

Mean: Same thing as "average;" sometimes used in statistical lingo. Examples of use: "Statisticians are mean lovers."

Metrics: Vital statistics, such as gross profit, machine up-time, customer response time, etc., that are measured on a regular basis.

Pareto's Law: Either used generically referring to a principle used to identify where most of a cause is coming from, i.e. an 80/20 analysis; or specifically Vilfredo Pareto, an Italian economist and sociologist.

Rule of Three: In a mature industry, three companies tend to dominate market share and have most of the profits.

SKU: An abbreviation for Stock Keeping Unit; an individual product part number that a business sells.

Standard deviation: A measurement of the spread of data; similar to an average. Used in the calculation for optimal SKU count.

Turn/Earn index: A way to justify stocking a SKU (retail) or producing a SKU (manufacting). Multiply gross profit by turns per year to calculate the index. For example, a widget with a gross margin of 45% that sells 5 per year has an index of 225. A retailer might have a minimum index goal of 150 and a manufacturer might have a goal of 100.