Until now we’ve dealt a lot with processes – your production process, your lead generation process, your customer service process. In step 17 of 30 Steps to Build a Better Business, we’ll focus on the numbers.
Many small business owners make the mistake of not measuring their business performance or only measuring one area of their business, like sales. While it’s better to measure something than nothing at all, not measuring enough can be almost as bad. Let’s go back to our business-as-body analogy for a moment.
When you visit the doctor for a health checkup, he doesn’t just check your pulse and declare that you’re healthy or not from that single measurement. If he did, you’d be right in assuming that your doctor wasn’t worth his salt. A good physician will measure your reflexes, your eyes and ears, blood pressure, etc. By looking at all of these measurements from your body’s different systems, your doctor can get a composite picture of your total health.
If you haven’t already noticed by now, your business, like your body, is composed of a set of interconnected systems. To get a holistic picture of your business’s health, you need a balanced set of measurements. Ideally, these measurements should be relatively simple and quick to produce so you can react to any less-than-optimal readings more quickly.
Since every business is different, there’s no one set of measures that will be the definitive list of measures for everyone. But the following list should give you a good start.
FINANCIAL MEASURES
measure the flow of money into, out of and within your business
A note about month-end reports: The most common financial measures appear in the monthly financial statements – P&L, cash flow statement, and balance sheet. The down side with these is: by the time you have the info to produce them, the month is over and there’s nothing you can do to change the outcome. Month-end reports are called lagging indicators, because they reflect what has already happened in your business. While they’re important to watch, you also need some leading indicators that will help you determine your company’s performance on a more regular basis.
Sales Revenue
Revenue Growth
Revenue / Profit per Employee
Revenue / Profit per Customer
OPERATIONS MEASURES
measure the core operations of your business – namely, marketing sales and production
# of Units Sold
# of New Leads
Lead Conversion Rate
Production Cost
Production Efficiency
CUSTOMER SATISFACTION MEASURES
measure your customers’ perception of and satisfaction with your business
# of Referrals
Customer Opinions / Perceptions
CAPABILITY MEASURES
measure the skills and resources available within your company and how well you use them (NOTE: this category of measurement will be highly dependent on the type of business you’re in and what skills and resources are most valuable for that kind of business.)
Productivity – units of work produced per employee or per unit of time
Process Efficiency – time it takes to complete a particular process like taking an order, responding to a customer inquiry, or any other process that is vital to your business
Skills – training, certifications, or specific know-how that you or your employees should possess
Once you have these measurements available to you, what do you do with them?
When you get your physical results from the doctor, you may be advised to adopt a different diet or exercise regimen or be given a prescription to alleviate an identified condition. Likewise, your business measurements themselves won’t provide solutions, but they will help you ask the right questions and make the appropriate changes in your business.
Read more about business performance measurements and metrics….
photo by aussiegall (Flickr)
