How well are you measuring your business performance? Choosing the correct metrics will enable you to make the relevant decisions to drive your most important metric: sales. A metric is a key activity in your business that you must measure, evaluate and use to make decisions. Measuring and making decisions with the incorrect metrics will lead you in the wrong direction.
There are standard metrics to track such as sales and traffic, but your industry specific metrics are critical for your success, but are often more difficult to determine. I would recommend subscribing to your industry specific publications and watching your competitors for what metrics to concentrate on to better plan and execute your daily operations.
I remember when I was traveling to Iraq for my final combat deployment, and my team had discussions around what metrics to use for measuring finance operations. These metrics would be used to brief senior commanders on military finance operations and to assess if we were meeting the combat theater goals at the time. Every business must include this discussion in the formulation and execution of their strategy.
Here are several considerations to ensure you are tracking relevant metrics for your business:
- Supports your strategy. Metrics you use to measure performance should be aligned with your strategy. The competitive advantage you are focused on may very well depend on properly measuring business performance data. If you trying to be a low cost provider in your market, you have to dissect and measure all costs related to not only the goods you sell, but also your fixed costs. Any surprises with higher than expected costs because you were not tracking them will eliminate the opportunity with this strategy.
- Standard metrics. There are standard metrics that all businesses should be measuring on a year over year basis such as sales, traffic, gross margin, current ratio, inventory levels, and customer satisfaction. These metrics should be reviewed with great frequency to determine what direction your business is headed. Without knowing these basic measures of performance, you will find difficulty in growing a successful organization.
- Industry specific metrics. Find the expert publications and websites to determine what is critical in your niche that you need to measure.
- Have a system in place. A finance and accounting system is critical to measuring, tracking, and evaluating your metrics. A point of sale device can feed sales and inventory numbers into a database, where you or an analyst can process that data to examine year over year trends. Additionally, reporting these metrics properly will require them to be presented in a relevant and realistic view so the reports can be useable by decision makers.
Remember the Peter Drucker quote, “what is measured can be managed.” But, you have to ensure you are measuring the correct data items. You must dedicate your most finite asset of time evaluating metrics that can improve performance and that can determine if you are profitable.
“In business, the idea of measuring what you are doing, picking the measurements that count like customer satisfaction and performance… you thrive on that.”
– Bill Gates
What happens when you notice your business bank account is dwindling to zero but you have not been tracking any data to determine why that is happening? In your brick and mortar store, you might see traffic fall off or maybe conversion is down. It is also possible that customers could be buying lower margin items. Without a way to measure that, you will have no insights to make decisions to fix your business.
What metrics have you adopted to improve your ability to make decisions?
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Copyright 2016-Stephen McLain