You Can’t Manage It If You Can’t Measure It
October 2005 Issue
They say what you don't know won't hurt you, but nothing could be further from the truth when you run a small business.
If you operate based on "gut instinct," or you make assumptions on how your business is performing without knowing the facts, you can run into problems quickly. Fortunately, there is a simple solution. By monitoring a few key business metrics, you can quickly get a handle on your business and start on the path to improving your profitability.
Business metrics, or measurements of business activity, have long been seen as the exclusive tool of the pure number cruncher, the bookkeeper, the statistician. That's no longer the case.
In today's increasingly flooded marketplace, the mantra must be: "You can't manage it if you can't measure it."
By defining the metrics that are important to your business and monitoring them closely, you gain three key benefits:
1) Focus. Defining the metrics that are most important to your business allows you to tune out everything that isn't related to those key measurements. As a result, you'll find that you and your business are much more efficient.
2) Better vision. Companies that monitor metrics can spot threats and opportunities faster than companies that don't. Your metrics will give you keen insights into what's happening within the four walls of your business as well as overall trends in your industry.
3) Better decisions. Metrics provide a framework for making business decisions. With the numbers in black and white, you can make well-reasoned decisions on how to proceed. If it improves your key metrics, consider it. If not, move on.
Getting started with metrics is easier than you might think.
Many small business owners don't understand how simple it can be to collect and analyze these important numbers. A simple, seven-step process gets you started:
1) Define Your Goals. Make a list of your
business goals. Goals might include sales objectives, target profit
margins, or success at signing up new customers.
2) Define the metrics. For each business goal
on your list, write down a metric that will help you track your
progress to success. For example, if your goal is signing up new
customers, your metric might involve stating the number of meetings
you will have per week with prospective customers.
3) Benchmark current status. Now that you've
established your metrics, you need to measure them. You must
determine exactly how your business is doing, even if the truth is
hard to swallow. By establishing the current value of each metric,
you will be able to track your improvements in the future.
4) Put in place a system to monitor and report
metrics. You may need to add new business processes that
will help you calculate and report your metrics. For example, if
your metric is the number of your customers who view your customer
service as being "excellent," then you may want to survey your
customers every month and ask them how you are doing.
5) Communicate metrics with employees. Once
you've defined the key metrics that are important to your business,
be sure to let your staff know. Then, everyone can make decisions
that help improve the metrics.
6) Review the metrics and make decisions. With
your metrics in place, you have greater insight into which
strategies work and which don't. Review the metrics and take steps
to improve your results.
7) Promote successes. When your metrics improve, let your staff know and reward everybody that helped to make things better.
Metrics Best Practices
As you move towards using business metrics to manage and improve your business, follow these suggestions:
- It's important not to have too many metrics. Concentrate on only a handful of metrics that are necessary.
- Choose the right frequency of measurement. If you only measure
a metric once a year, you may not get the information in time to
take the necessary corrective actions.
- Periodically reevaluate your metrics. Your business priorities change over time, and your metrics will need to be modified accordingly.
Reaping the Rewards of Business Metrics
Effective use of business metrics can have a profound impact on your business. As you gain a better understanding of your business and move closer to achieving important goals, your day-to-day work will become easier, and your staff will be more accountable to the metrics that matter. You'll make decisions based on data, without the confusion of emotional input or information overload.
Put aside a couple of hours to get started with your business metrics initiative. Decide what metrics you need, do some initial benchmarking and get started.
Remember, what you don't know can hurt you.
Business metrics can keep you aware of how your business is faring and ensure your business is in good health and on the right track. Collect appropriate metrics on your business, summarize and make them useful, and you will have a powerful new tool for managing your business.
Business Metrics in Action
Managing with metrics is the necessary step in order to standardize your processes and grow your business. Let's look at how metrics can be used in managing two areas of business where metrics are often overlooked.
The only metrics most businesses use to manage their sales activity are simple sales forecasts. The only numbers they care about are the actual sales revenue and profits.
Yet, numerous other measurements can be utilized throughout the sales process to help increase these sacred revenues. For example, firms that use inside sales forces should measure not only the number of units sold or appointments set, but also the number of dials and actual presentations to customers. These numbers are important both in determining the effectiveness of your marketing criteria, as well as the skill of individual salespeople.
There are many variables that go into completing a sale, and some of these variables are beyond the salesperson's control. Break down the sales process into sub-processes, measure them each accordingly, and you can manage the entire system more effectively.
Having all salespeople, both inside and outside representatives, record simple counts of their various activities on a regular basis will also increase efficiency. At the end of the day, have your inside reps record on a simple form their number of sales, dials, presentations, and even calls in which they could not get through. At the end of the week, have outside salespeople record their number of appointments, follow-up calls, assigned versus held appointments, and time spent traveling.
All of these metrics can then be summarized to give you norms and benchmarks of your sales process. Comparison with these norms will drastically increase your ability to train and manage your sales force. This measurement and comparison is the first step in instituting benchmarking and continuous improvement practices.
You can't ultimately determine what results a given business activity will attain, but with metrics, you can determine the amount of activity. Measuring this activity is your best bet to be able to manage it correctly, and thus get the results you desire.
Metrics are not only useful to statisticians in marketing research; they are also useful in other areas of marketing and business development. The more you can record and measure about each marketing activity, the more you will know about your market.
Promotional codes on direct mail pieces and questionnaires on websites are examples of ways to gain specific data on your market demographics. Record this information for your current customers as well. Your salespeople should also collect information about prospective customers.
It is not only important to measure your marketing data, but you must also summarize it and organize it in marketing databases. You will be surprised at how much you can learn about your market when you simply "listen" to it--by quantifying and segmenting your marketing metrics.
Michael Alter is president of SurePayroll. His company offers a web-based payroll service designed exclusively for small businesses. For more information, phone 877.954.SURE or visit www.surepayroll.com