I was with a client yesterday talking about how to grow their business. Everything was going well until I asked for some more details about the sales figures and profit margins. I got a slightly sheepish look from the MD and a comment that whilst they could give me monthly and even daily overall sales figs for the business, they couldn’t break that figure down in any more detail.
Now whilst this may seem surprising, many companies are guilty of having similar number blindness and don’t have a clear idea of the reality of what is going on in their company. Do you for instance, have a clear idea of how your sales figures are made up? Do you have an idea of what your profit margin is on each of your products or services? Do you know which of your clients are the most profitable?
Numbers are your friend!
There are all kinds of reasons for not tracking and measuring these types of numbers: not knowing what data to measure, not knowing how to track the data, not knowing what to do with the data once received etc.
However whatever the reasons, it is important to realise that the only way to effectively grow your business is to embrace numbers and treat them as your friend. Numbers tell you exactly the way that it is, they can help show what has happened and they can inform you of how things will be in the future. Some people avoid looking too closely at the numbers in their business for fear of what the numbers may reveal. However it is good to remember that although that you cannot change the past, you can use information today to change what you do to improve your performance tomorrow.
You cannot improve what you do not measure.
If you want to get better at something you need to know what level you are starting from. If you want to sustainably grow your business you need to know where your business is operating today.
Tracking the right numbers can help you to keep focused on delivering your strategy for growth and allows you to stay neutral by seeing clearly what is going on without the emotion. Reviewing the numbers regularly and watching how they change provides an opportunity to learn from the actions that you are taking. What are you doing right that you can do more of? What do you need to do less of or stop doing? How can you apply what you have learnt going forward?
So if you want to track numbers which ones should you monitor to help you to grow your business? There are so many different numbers you could look at there is a danger of being overwhelmed and not tracking any, or tracking too many numbers that aren’t giving you the information that you need.
What numbers to track?
There are two different types of numbers that you can track and measure:
1) Lagging indicators – these are usually output based and tell you how things were in the past e.g. revenue, sales figures, number of customers, etc. They are usually easy to measure but hard to improve or influence.
2) Leading indicators – these are usually input oriented and help to determine how things will be in the future. They can be harder to measure but much easier to influence and improve. e.g. number of client visits you make, telephone calls you make, emails queries answered in under 2 hours, no cases closed in 48 hours etc.
To change the lagging indicators (the results) that you are getting in your business, you need to focus on determining and measuring your leading indicators. To determine your business leading indicators you need to identify what are the activities that you must undertake to achieve the desired outcome?
E.g. in your business you want to grow on line sales.
Your lagging indicator will be measuring your % of turnover or profits derived from on line sales.
Your leading indicators could be:
1) Number of people visiting your web site
2) Visitor time spent on your web site
3) Number of email addresses captured
4) Number of emails sent to a potential customer before buying etc.
All these leading indicators can be influenced and improved upon once they are being measured.
Identify your Critical Drivers to improve performance
Determining and monitoring critical drivers in a business is key to improving performance. Identifying key performance indicators (leading indicators) and measuring them will ALWAYS move you forward as it raises your awareness of where you are and what you need to focus on .
Another way to look at KPIs is to use the analogy of flying a plane. Pilots watch dials very carefully to guarantee the success of a flight. They are always monitoring their dials, checking to see what is happening so that they can take corrective action to stay on the current course.
What are the characteristics of KPIs or business dials?
1) They are carefully selected measures that guarantee success
2) They give information on what is happening now or what will happen
3) They have pre-determined levels below which corrective action must be taken to guarantee success
An example is a vehicle fuel gauge, which is designed to show you when to take corrective action if the level of fuel fall below a certain point.
Identify your own KPIs or business dials
Using and measuring KPIs or dials helps to determine if you are going to achieve your business goals, however they take patience to set up and start using. To determine the right numbers that you need to track in your business you need to do the following:
1) Determine which KPIs/dials need to be created
2) Determine the level each KPI/dial must reach to achieve success
3) Create a system to monitor and measure KPIs/dials
4) Employ the qualities of playing a game
5) Focus on actions needed to take to get/keep dials at their levels of pre-determined success
If you do take the time to identify the key performance indicators in your company and regularly monitor and measure them you are GUARANTEED SUCCESS!
Dare to check how you are doing – as often as possible!
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