We can find information easily and quickly today with the help of the internet, GPS navigation, and smartphone communication. In your business, success hinges on having the right information about the right indicators at the right time.
KPI (key performance indicators) are to business like points on the Leader Board at the Masters Golf Tournament are to sports. KPI tell you if you are winning or losing. A key indicator for almost any business is the cost to acquire a new customer. Another key indicator is the value of an existing customer.
If you don’t know your current reality or “the brutal facts” as Jim Collins says in Good to Great
, how do you know how to plan or to make a course correction? If you don’t know where you are, how can you make good decisions to go where you want?
For example, I asked the CEO of a construction company what advice would he give to a business owner. Without hesitation he replied, “Know where you stand. I get a report every week on the progress of each job and where it stands. A lot of contractors think when they have money in the bank they are doing well. This isn’t the case.”
If your business is not measuring KPI or measuring the wrong thing, you can be experiencing:
Some underlying reasons a business does not face facts:
- Missed opportunities
- Bad, costly decisions
- Unachieved goals
- Confused employees
- Jeopardized long term sustainability
How to get a handle on your current reality with the right measurements:
1. Determine what measurements reflect the critical areas of success in your business. They will be different for different businesses. A medical practice will have different indicators from a financial institution or a retail business. Choose well because what you measure indicates it is important. Blood pressure, weight and temperature are important to health because these indicators are measured, monitored and recorded meticulously in your medical file.
2. Establish ways to measure in each critical area of your business.
- Difficulty in knowing what to measure
- Challenge in creating the measurements
- Lack of understanding about the power of measurements
- Action not tied to measured results
- Inexperience in developing ways to measure KPI
There can be multiple measurements for customer satisfaction, for instance. The number of return visits as well as the number of referrals can measure customer satisfaction. Remember to be specific and realistic in how you measure.
3. Assess and analyze the information regularly and in a timely manner.
Do you need daily reports or will a monthly report on your key performance indicators be adequate? Getting the data too late is as detrimental as no data. Does your CPA conduct a year end tax planning review for your business? After
January 1st it’s too late to save money on your income taxes for the year ending December 31st. As we say in the south, it’s too wet to plow.
4. Share the facts with your employees.
How can they help you achieve the goals for your business if they don’t know how they are doing? The facts are only facts that reflect what is producing the results you want or not. Facts are neutral. We add the emotion when we interpret the facts.
5. Organize and coordinate the data to paint a picture.
Data is a collection of facts that while accurate don’t necessarily paint a picture or tell a story. Convert data into information by showing relationships and connections within the organization. With information
you can make better decisions. An isolated snap shot of one month of retail sales is not as useful as the monthly sales for twelve months which allows you to see trends and patterns.
Shedding light on your most profitable streams of income can change the way you do business.
I recall asking a veterinarian with a small animal practice what was the most profitable part of his business. He did not know. I am not sure he had ever given this idea much thought. He is a highly skilled professional who is trained to care for small animals not run a business. He and his staff researched the costs and income from surgery, boarding, well visits, sick visits, medication and products. He discovered to his surprise that medication was most profitable.
Knowing what to measure in your business and devising the methods to take the measurements, are integral parts of being successful.
Once you know and understand the picture the facts are painting for you, you are positioned to make wise choices. Are you measured for success?