The Importance of Metrics for Your Business

Business metrics are critical measures of business activity that support the tried and true business belief that you can’t manage it if you can’t measure it.

Defining key metrics and closely monitoring them on a regular basis allows you to focus on what’s most important to your business and therefore increase efficiency, gain better insight about your business and your industry, and make decisions that are supported by actual data, not just intuition.

 

Establishing Metrics – 7 Steps

Step 1.  Define your goals. 
Where do you want to take your business?  How much do you want to grow?  What are your sales and profit margin objectives?

Step 2.  Define the metrics that will allow you to track your progress toward the specific goals you identified. 
If you want to grow your business by increasing new accounts, start tracking how many you have now and which ones are most profitable.  This will allow you to define characteristics of the types of customers you’ll want to target with your marketing.

Step 3.  Benchmark where your business currently stands with regard to each of the metrics you defined. 
This will give you a starting point from which to track improvements.   

Step 4.  Develop a monitoring system. 
You may need to add new processes for measurement.  For example, if your goal is to increase your web site traffic, you’ll probably want to include a site hit counter or create a way to measure how many people are visiting and in what pages they’re most interested.

Step 5.  Report and communicate. 
If you’re going to create business metrics, you need to have a specific plan in place for how often you’ll review them, as they will be useless unless you’re consistently monitoring your progress toward your goals and making appropriate adjustments.  Typically, a monthly review is an appropriate frequency, although some may need to be evaluated more often in order to determine if you’re on the right track with the plan you’ve put in place to meet the goal. 

Communication to employees and other key partners about where the company stands in meeting its objectives is also critical to keeping focused.  Steady, measurable advancement toward a goal is typically highly motivating for those involved in reaching it.  Keeping employees in the loop on progress also helps them make sound decisions that support the direction of the company and improve the metrics.

Step 6.  Review your metrics and make decisions and adjustments. 
Your metrics will allow you to clearly see which strategies are working for your business and which are not.  Make adjustments to plans or put new ones into place in order to improve your results. 

Step 7.  Reward successes.
When you achieve a goal, talk about it with your employees.  Recognize and reward anyone who helped with the accomplishment.

 

Key points to remember about business metrics:

  • Don’t have too many or it will get confusing, hard to focus, and potentially difficult to track.  Once you achieve some initial goals, you can always add more.
  • Measure and review all metrics on a regular and frequent basis.
  • Reevaluate frequently to ensure you should still be measuring what you’re measuring (but don’t just cross something off the list because you’re not achieving the goal you established!  Instead, reevaluate the plan you’ve put in place to achieve it; you may need to change your strategy.)

In general, it’s critical to not run your business like you manage your checkbook.  Meaning, don’t just spend the money because it’s sitting there.  You need to have a plan and budget.  Metrics allow you to make well-informed, strategic decisions about where to allocate funds.

For example, because metrics provide you a benchmark and a solid record of where your business is headed and where it’s been, you have the information you need to make decisions about staffing numbers, marketing expenditures, and where it makes sense to dedicate resources (in terms of employees and finances).  At CLS, we used metrics – which we review on a monthly basis – to determine when it was necessary to reduce our staffing due to the downturn in the economy in 2008/2009.  We didn’t make the decision to cut jobs out of panic or some other emotion; we used hard data to determine that it was the wisest decision in order to keep our business viable.

 

Examples of Valuable Business and Financial Metrics

  • Return on Time Invested (ROTI): the revenue or profit you generate for each hour you invest in your business.
  • Leads generated: if you want to get more leads, you need to find out where the ones you’re getting are coming from, right?  By tracking this metric, you can determine the best ways to spend your marketing dollars.
  • Leads converted: it’s equally important to know exactly what percentage of your generated leads actually become customers.  Understanding these conversion numbers can help you refine your ideal customer and core message.
  • Assets Under Management
  • New Accounts
  • Account Performance
  • Asset Growth vs. Market Growth
  • Web Site Hits
  • Compensation as a Percentage of Net Income
  • Net Income per Employee
  • Net Income as a Percentage of Gross Revenue
  • Gross Margin
  • Cancellation Rates

 

A Word about Marketing Metrics

Do you know how effective your marketing is or do you spend money on brochures, ads, and your web site simply because you know you need to get your name out there somehow?

Marketing is in fact critically important to every business, but the tactics involved can vary significantly and can bring about very different results for different types of organizations.  If you don’t have a process in place through which to connect leads and sales with specific marketing efforts, you can’t determine what’s working and what’s not. 

For example, let’s say that you are running an ad in the newspaper this week and you have also created a direct mail piece that will be delivered this week.  If you don’t put in place some way to determine which of those methods is most effective in bringing in new customers, you may be spending money where it’s not actually needed.  The less-expensive ad could be doing the trick to ramp up customer traffic, but without measurement, you may continue to allocate precious resources to the direct mail campaign. 

Determining what’s working as far as marketing can be as simple as asking each customer “how did you hear about us?” Or, say you’re doing two separate direct mail pieces.  In that event, each piece should include a separate promotional code or advertising number that you can ask new customers to reference when they call for an appointment.  That way, you’ll know which of the two pieces was most effective and you can also gain specific data on your market demographics.  Track each response over a period of time to get accurate results that can help you plan your future marketing tactics. 

Once you employ marketing metrics, you can make intelligent decisions about how to optimize your marketing budget.  Measuring results will help you save money because you can eliminate unproductive marketing tactics and replace them with those that you’ve identified as productive.

1359-CLS-11/18/2009