The Value of Metrics

It’s a great idea for any business (big or small) to establish some key metrics that, at a glance, can illustrate the health of your business. Without metrics, a business owner has weak options when it comes to making key business decisions.

One common excuse for not establishing key metrics from day one is the lack of enough data to determine what should and shouldn’t be measured. In the absence of accurate data, most business owners resort to using a guess based on a benchmark standard, sound reasoning, and good old-fashioned common sense. That may work for some small business, but only for a short time.

Many small business owners don’t realize how simple it can be to collect and analyze relevant numbers and data. Here is a simple seven-step process gets you started:

  • Define Goals. Make a list of business goals—perhaps including revenue objectives and gross profit margin targets, or success at selling new accounts.
  • Define the Metrics. For each business goal on the list, write down a metric that will help track progress along the way. For example, if the goal is to close two new accounts each month—worth at least $12,000 annually in invoice dollars—the metric might involve stating the number of sales calls or meetings with qualified perspective customers that should happen each week. Other commonly-chosen metrics include Days Sales Outstanding (DSO), dollar amount per job order, a sales rep’s close ratio, percent response on a direct marketing campaign, number of pieces finished per machine operator per day, ROI on a training program, percent uptime of production equipment, the number of excellent ratings obtained on customer-satisfaction surveys, and Days Inventory Outstanding (DIO), a.k.a. inventory turns.
  • Benchmark Current Status. Once the metric has been established, devise a simple method of measuring it (simple is good!). Just documenting efforts toward achieving the goal will not ensure success. By measuring the current value of each metric, you will be able to track your improvements in the future.
  • Monitor and Analyze Key Metrics. Not only does this self-reporting need to be brutally honest, but the data must be analyzed periodically—even if the truth is hard to accept. It may be necessary to implement new daily processes and procedures to ensure the data is kept current and reviewed on a regular basis.
  • Communicate Metrics with Key People. Once key metrics have been defined and data-collecting has begun, share the information with staff and advisors.
  • Make Adjustments Based on Metrics. With key metrics in place, you should have greater insight and keener focus into which strategies work and which are lagging. Review the metrics and take steps to tweak them to improve results.
  • Emphasize Successes. When goals are attained and verified by the metrics, let employees know and reward key contributors to the company’s achievements.