Most people’s eyes glaze over at the mere mention of ‘measuring your business’, but if you want a successful business you need to master the art. The good news is it is easier than most people think.
In fact most people have completely the wrong idea about metrics – what you measure in your business. They think it is about endless paperwork, filling out forms and data sheets about the work that has just been completed, is planned or even that might be scheduled sometime in the near future.
In truth a good metric is one that is a ‘by product’ of doing the task itself. Let me explain that – let’s say a salesperson makes a sale. They include their name or sales id on the invoice that is printed and handed to the purchaser. Now we can simply look at all invoices to see who sold what, to whom and when. We don’t need a separate sales tracking or sales performance system. We don’t need the sales person to fill out any forms, or record their activity in any way.
Not all metrics can be developed in this way, and some will require some ‘data entry’ or some filling in of forms, but this can and should be kept to a minimum.
A possible example of this kind of metric is tracking the phone calls a telemarketer makes. Just recording the calls made from their phone would not be 100% correct since some of the calls might be for other purposes, or follow up calls to existing clients and not prospecting calls. It may even be that someone else used their phone for whatever reason. If they record the result of the call against a client or prospect record then they are providing you with the information you need to track their performance. A more automated way is to have your system dial the number for them. That automatically records a call against the specific client or prospect without additional effort of any kind. You have replaced a manual dial with an automated dial, and the amount of work by the telemarketer remains the same even though you now have additional metrics.
What current information do you have that would allow you to establish the activities of your staff? What small changes might you make in order to capture more information?
We’ll look at some examples of what metrics you might record shortly, for now there is a more important topic. You need your team to understand ‘why’ you are recording the metrics.
In my experience most people assume that it is so they can be punished for negative or poor behaviour. Whilst that can be true, it isn’t why I think metrics should be employed. In fact I believe that metrics benefit both the business and the individual team member. Let’s explore that before continuing.
Have you ever experienced someone who is junior to you being promoted above you? Or a less qualified person being assigned a plum role, or given the choice location? What if that company had a better idea of who the top performers were? What if that firm could promote based on actual ability? Wouldn’t that benefit those that perform better than average? That’s what good metrics does; it allows everyone to know what the criteria are, and who is stepping up and doing their share and who isn’t.
This level of visibility (coupled with an open and honest system) will allow those that perform well to be rewarded, and those that don’t are identified for additional training or counselling. If things do not improve then the metrics together with records of offered education and counselling provide a solid reason for termination, removing the grey areas sometimes found in the process of terminating underperforming staff.
For maximum effectiveness, everyone must be aware of the expected standard of behaviour and the associated rewards. They must also be aware of the measures that indicate that their behaviour is not up to standard, and the associated consequences.
Once you have established this each person is in control of their own destiny. That will improve staff morale and align the company targets with individual goals. It sounds too simple, but it is true. Try it, you’ll like it!
Now let’s look at some example metrics that you might record in your business. What are the key performance indicators (KPI) for your business?
Every business owner or manager will have their own idea of what they would like to track. The important thing is to identify metrics that cover the full gamut of your business rather than just focussing on one or two areas.
For example your business accounts record the financial aspects of your business, but may not indicate much about customers, suppliers or staff morale, the level of innovation in your business or the perception that your customers have.
Finance is an important area, it does need to be tracked, and it can be in some simple ways. Some people simply track the value of the profit made each reporting period. That can hide some important details, so I suggest that two financial figures are tracked: overall income and overall outgoings. Money in and money out.
With those two simple figures you can see if your expenditure was what you expected, and also see what funds were accumulated by your company. The difference is the profit you made that period.
If any figure is outside the expected range then be prepared to drill down and investigate why. Take a look at the financial records and find out why the number you saw was outside the range. It doesn’t matter if the variation is positive or negative, you need to know why. Then you can do more of the things that have positive effects and less of those that are negative.
In a small business it would be you who tracks down the reasons, in larger businesses the task can be delegated to the responsible department head, or you may have a separate department just for investigating the variations. Either way you don’t stop until you have reconciled the figure.
Other useful metrics are those that measure the activity of your staff. Those activities will vary depending upon what kind of business you operate, so we will just use the sales process as an example.
You would most likely benefit from recording the number of prospecting calls made, either in person or via the phone, the number of appointments made and the number of subsequent sales. If you had this information you would be able to identify those who were converting a higher percentage of prospects into appointments, and a higher number of appointments into sales. Once you have this information you can investigate why they are doing better, and then develop suitable training for the other staff in that role.
You would also identify those most in need of some additional training or counselling.
Knowing the number of returning customers will help you judge the way your business is perceived. If that number is low, or is trending down over time then it is an early warning that there is a disconnect between you and your customer/client base. The number alone will not tell you what is wrong, only that there is something that needs to be investigated. At least you get the chance to investigate and correct it!
Knowing the number of new customers is also useful. It indicates that your marketing and advertising is working, or that your existing customers are spreading the word on your behalf. Asking new customers where they found out about you will provide you with additional insights.
Tracking the number of customer complaints will provide you with an indication of the interaction between your staff and customers. There may be a pattern that you can use to minimise future complaints, for example providing product training for the location that generates a lot of complaints about the suitability of the product or problems using it.
A successful business records all of the above metrics already; we are only talking about using the existing data to extract additional useful information.
Encourage your staff to be open about what they like and dislike about what is going on. That could be a simple ‘suggestions box’, with staff allowed to include their name or provide anonymous feedback as they feel inclined. Again, seeing patterns in the feedback allows you to investigate and take the appropriate corrective actions if any are needed.
There are several metrics that could be recorded about your direct competitors. Their level of advertising, or their discounting practices, or how busy they are compared to you. You might even send in a secret shopper to provide you with honest comparisons between your business and theirs. (Sending the same secret shopper into your business will often provide you with many interesting revelations!)
What other activities can you think of that make sense to track in your business?
Use some of the above and some of your own just make sure that they are all easy to track, they actually provide useful insights and that you are not tracking multiple metrics that all move up or down together. If you have a group that always move together then you don’t need to track them all – pick the easiest one and track it. When you investigate anomalies remember to look at all areas, not just the one you chose to track.
So far we have discovered how simple it can be but not why you would want to track some metrics.
Would you be happy with a 30% increase in sales compared to last year? What about a 3% increase? Or a 0.3% increase? Most companies would like to have a 30% increase, and most would settle for 3%. Anything less means that in real terms the business probably contracted! In fact anything less than the inflation rate means that your business definitely contracted.
The sad situation is that unless you measure what is going on you would never know. Some people had a 20% increase and are still worried! Some had 0.2% and are not!
Let’s end with an example of the benefits to your business of good metrics.
Imagine you operate a business with the following figures for the financial year that has just ended:
|Cost of Sales||$500,000|
Now let’s establish your goals for next year. What about a small improvement of 5% in Sales, Cost of Sales and Expenses?
I selected 5% because it is quite achievable, and would be invisible without actually tracking the figures. In the following table Sales have increased by 5%, and Cost of Sales and Expenses have both reduced by 5%.
|Cost of Sales||$500,000||$475,000|
Take another look at the profit – it has increased by over 61%! The three 5% improvements have resulted in a 61.67% increase in profit.
Now let’s imagine that you operate a business where the reverse happened – the individual figures went from what they are in the second table to the numbers in the first table. Your profit reduced from $242,500 to $150,000. Would you be concerned? Of course you would. Would you know why? Not unless you tracked the right metrics. Would you be able to fix it next year? Not if you don’t know why it happened.
You now know that the right metrics are beneficial to the profitability of your business, are easy to track and will assist you to improve every aspect from staff morale to customer satisfaction.
You’d be crazy not to use them!