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 gain 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, and 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:
- 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.
- 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.
- 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.
- Define Your Goals. Make a list of business goals. Goals might include sales objectives, target profit
margins, or success at signing up new customers.
- 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 perspective customers.
- Benchmark Current Status. Now that you 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.
- 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, 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.
- 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.
- 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.
- Promote Successes. When your metrics improve, let your staff know and reward everybody that helped
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 informational overload.
What's Next
Put aside a couple 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.
Michael Alter is President of SurePayroll. His payroll outsourcing firm processes and remits payroll
taxes for over 15,000 small businesses across the country.
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