You Can’t Manage It If You Can’t Measure It
By Michael Alter 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
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.
Implementing Metrics
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.
What Next?
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.
Sales
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.
Marketing
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 
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