How Healthy is Your Business?Nov 15, 2022
Update 12/2022 This post was originally written 6 years ago. My divorce hadn't happened. Moving to a new town hadn't happened. Pivoting my manufacturing business to a new business model hadn't happened. The world-wide pandemic COVID-19 hadn't happened. But the principles remain steadfast.
My business survived a devastating reversal and abyss of sales in one cataclysmic event after another. How? I followed what I believed. You can do it, too! Regardless if the event is a worldwide event or if it is up close and personal you can prepare, survive, and even thrive.
Hopefully, you check in with your doctor and dentist, annually, maybe even semi-annually. But, have you considered doing the same for your business? Your business has a pulse and you need to keep it strong to withstand market volatility and crises (they happen to every business, so it's best to be prepared). Following are some Key Performance Indicators (KPI's) or metrics that every business owner needs to know:
- Financial KPI's/Metrics
Cash Flow, Balance Sheet, P&L are the basics. Fundamentally you need to know your debt as % of revenue, gross and net income, and net and gross margins, as well. Whittle that number down every quarter, then every month. I have drilled further to knowing my weekly and daily numbers so I can spot trends quickly especially the ones that need attention. Be sure to include industry specific metrics, too. As a manufacturer, I need to know inventory turns and labor rates. Another financial metric I watch is the funding level of an emergency account to the equivalent of 6 months expenses. My favorite game-changing book is Profit First, by Michael Michalowicz. Mike challenged all my assumptions about sales (expenses) = profit. Mike's premise and the book's bottom-line: presents a cash-flow management system that entrepreneurs get and that profit shouldn't be considered last. My company is leaner and more profitable since I read the book and applied its principles. Oh, and it is an entertaining, laugh-out-loud, "uh-huh, that is so me!" read. He gets, he knows the entrepreneurial mind.
- Professional Development KPI's/Metrics
Education, Leadership Training, Coaching, Motivation, Success, and Industry Certifications. No one operates in a vacuum. In fact, we're often (too often) in our own head and it's kinda' myopic in there. As your company's leader, you need to get out of the office and be among your peers. In addition, you need to stay abreast of the latest thought leaders. Commit to reading 2 dozen business books a year, that's only 2 p/month. Considering it takes 3-4 hours for the average reader to read and absorb a book, multiply that by 2 books p/month, that's only 10-15 minutes a day. Audiobooks are fine. But, recent research shows reading engages (good) parts of the brain that listening doesn't. Don't know where to start? First and foremost and worth repeating, Profit First by Michael Michalowicz. Next in line is E-Myth, by Richard Gerber, it's a seminal business classic. He distills why we all need to process our business functions. And it's a well-told story, too. Take an on-line course or two to improve your skills and hire a coach; a
good great one. Your hand should be shaking when you are hitting that "enter" button to pay their fees.
- Employee KPI's/Metrics
Appreciation, Retention and Development Programs; Sales p/employee, employee hours (sick-time, overtime, accrued vacation time); company benefits, timed response and satisfaction rates for employees directly involved with customers. Review your employee manual, too. Oh, you don't have one? Put that top of your "Get To Do" list!
- Customer KPI's/Metrics
Without your customers, you wouldn't have a business. So you better know this one up, down and sideways. I know my customer demographics and my end-user stats (they are not always the same). I measure the # of orders, the AOV (Average Order Value), LTV (Life-Time Customer Value [tip: breakout the profit, too!]), CAC (Customer Acquisition Cost), CPC (Cost p/conversion), conversion % (for e-commerce stores; otherwise closure rate), CRM (customer relationship management) stats, return %, pipeline stats (# of visitors to store, sources of customers, etc...), social media stats (# of followers, posts, re-tweets, etc...) every week. Be on the lookout for patterns. For example, seasonal highs and lows.
- Process KPI's/Metrics
Process is more than IT or engineering. Process metrics monitor, evaluate and improve processes company-wide. From the simple, how employees answer the phone, to how refunds are processed, to the more sophisticated EDI for inventory controls, process is part of every company. You think this doesn't apply to your company? Again, I encourage you to read E-Myth. Mr. Gerber takes us on an entrepreneurial journey with Sarah, a fictional small town pie-maker. If you're like me, you'll be converting her pies to your widgets.
- Sales & Marketing KPI's/Metrics
Though closely linked to Customer Metrics, classic numbers to follow are ROAS (return on ad spend) for each channel/medium, # of blog entries (and stats on those [tip: watch what's effective and replicate it]), sales p/employee and p/account executive. Do you have a metric to track follow up of calls, brochures, inquiries? I guarantee you, you are leaving dollars on the table if you have no formal process or system.
- Strategic KPI's/Metrics
Because it isn't "hard data" many KPI's/Metric experts and/or apps miss this. You need to spend time working on your business not just in it. If you take 1 day p/month, off-site, to just think, dream and strategize about your business you will be farther ahead 1 year from today.
Things to think about are: What worked? What didn't? What and who do I need to cut?
Who do I need to hire? Where do I want the business to be in 1 year? What resources can I dedicate to making it come true? What does it look like? How can I get there? Who or what will I need to get there? Who are our customers? What do they look like? What do they need? What can I give them? What isn't being met in the marketplace today? What strategic partnerships should I pursue? What do they look like? How do I get there? How are we perceived in the community? What can I do for my employees? What's my exit strategy? Will I leave it as a legacy for my family? Should I liquidate? Should I sell? To whom? My employees? A competitor or a strategic partner? How do I prepare for maximum value and a meaningful exit regardless if I leave it as a legacy, close it down through a liquidation or a sale?
For the above to be successful, three elements need to be followed:
1. Metrics needs to be assigned to the right employee for accountability and ownership
2. As the business owner you need to review (and understand fully) the above metrics at least once p/month. Only then can you address problematic trends or dedicate more resources to solutions that are working.
3. You need to make friends with reality. Facts are your friends not something to hide from or deny.
Once you have your KPI's identified consider consolidating them to a dashboard on your computer screen. Domo and GuidingMetrics (as mentioned in this Forbes article) are two platforms I like. All the info and basic stats in one place change the way you manage your business and your team.
Bottom-line: You can't make a good decision without good information. You can't fix what you don't know, can't visualize what is possible for your company's future and you, or you can't properly celebrate achievements. Even if the facts paint a dismal picture of your business you'll have the facts to consider exiting your company (closing, selling, pivoting, etc. but that's another post) or you'll have a lot of room for opportunity and growth. Regardless, your facts are your friends.
Grab yourself a copy of my newly released "The 8 Essential KPI's for Product Businesses" by clicking here.
What did I miss? Post your helpful comments below.
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