I hope that you are keeping an eye on your business performance. However, even if you are, you may be overlooking several critical factors about how your business is performing, and some of these could be the difference between success and failure.
Most business owners probably keep a good eye over quantitative measurements such as sales, average markup, salary costs and expenses. However some of the most useful measures can be qualitative rather than quantitative, for example staff and client turnover rates or average service-delivery times.
Overall, before you start measuring your business performance, you need to be very clear what “success” means to you so that you can measure and benchmark the measurements that really count toward that success. If you are not clear on what success means in your business, you may be measuring the wrong measurements. For example if you focus on profit, you may actually be driving away customer volumes if your success is based on low margin/high volume.
Having determined what success means to you, you can then choose the metrics, both quantitative and qualitative, that drive that success. As you choose them, always ask yourself: “If I improve this measure, will that improvement lead to success?”
For example, if success means profit growth, one key measurement might be staff productivity (average profit per staff member). If that is the case you can then look at the training and development you are investing in them to increase their productivity.
Some of the quantitative measures might be:-
• Gross profit margins
• Labour as a percentage of sales
• Expenses as a percentage of sales
• Occupancy costs as a percentage of sales
• Net profit
• Average days’ inventory
• Average days’ receivables
• Average days’ payables.
However as mentioned above qualitative measurements are other ways to measure your business’ performance towards success:-
• Client turnover
• Client satisfaction
• Staff turnover
• Staff satisfaction
• Lead conversion rate
• Sales per employee
• Production or sales staff to administrative staff ratio
Don’t forget that measurements can vary from industry to industry and region to region. For example I would not expect a real estate agent in a rural area would have the same conversion rates as a real estate agent in a busy city. Certainly the profit ratios for a toy store would be different to those of a clothing retailer. So, research any benchmarks for your industry and set your own to ensure that they fit your business, and benchmark your route to your definition of success. By defining your own benchmarks and regularly keeping track of them you’ll be better placed to assess your overall business performance.
However when you do set your benchmarks, it is difficult to keep yourself accountable, especially if you are a small business owner, manager, and employee, and you do not have an independent Board of Directors to provide governance. So, a benchmark of 25% sounds too hard? Oh well, because you’re on your own, let’s make allowances and call it 15%.
No! Be aware that you can be too easy on yourself and seek an external viewpoint. Take your list of measurements to your accountant, your bank manager, your staff, even to a customer, and ask for their opinions.
In fact asking for feedback from clients should be an integral process of measuring your business success, since it is their attitude towards you that ultimately counts. Regularly, but at least once a year, ask clients for their point of view on how your business is performing for them. In some cases, you can do this in the form of an anonymous survey.
Negative (even though constructive) feedback can be hard to hear. However, treat these as opportunities rather than criticism and when you see some common threads, these can provide important information about your real business performance.
Finally however, be careful of paralysis by analysis.
When you get to the stage where you are measuring everything that moves and then taking enormous lengths of time to review and understand the data, but have hardly spent any time to act on the issues, that’s when you know you need to stop.
Focus on the five or six key benchmarks (certainly those that drive other benchmarks, for example where acting on improving the product rejection ratio will drive customer satisfaction, costs, and profit margins all at once) and then make decisions based on the analysis of them.
There you have it – a successful business does not become successful just by opening its doors. You need to keep track on performance and tweak that performance from time to time to drive the business towards the benchmarks of success relevant to that business. Achievement of the benchmarks of success will lead to actual success. Finally remember that it’s not all about numbers, the quality matters too.
What measurements do you use? How regularly do you review them? Why not get on https://teikoh.com and look at the free tools, templates and resources you can use to help your business succeed? While you’re there, register your name and email address so that you can get these valuable tools sent directly to your inbox.