Eight Drivers, Three Metrics, One Result
How do I know if my business is healthy? Where should I be looking? What are the best diagnostic tools? What metrics best reveal the health of my company? Though the specific answers will vary from industry to industry there are three categories that apply across the board. In the same way an annual physical with your doctor tells you if you’re on the right track, tracking numbers in these three categories will indicate how well your business is doing. Growth. Revenue. Customers.
We have shared several articles on the 8 key drivers of business value. We use our assessment tool to help calculate the value of a business based on how well the business scores in each of the 8 different areas and on their financials. It provides a powerful snapshot of the current state of the business. With the score in hand, we are able to develop strategies to specifically focus on improving the score of each the eight drivers. It is a great way to help a business develop a strategic plan to increase the value of their business.
This past week, a business executive asked, “What are the top three metrics every growing business should track?“ The 8 value drivers was too low of an elevation, the answer had to be more inclusive at a higher level. After some thought the best answer was Growth, Revenue, and Customers. The specific metrics will vary depending on the industry. But none the less, these are the top three places to track metrics if you’re concerned about business health.
Why those 3 and some examples of each…
Growth: Instinctively this would be a metric around sales, but it can also include real estate and capital expenditures. Growth is usually exciting but can be dangerous if you aren’t properly planning for it. Growth sucks up cash, knowing how fast you can safely grow with your products margins will help insulate you from swings in the economy.
Examples:
- Period over Period increase by dollar or %
- Market Share vs. competitors
- Cost to acquire customer
Revenue: Tracking metrics in revenue is the most obvious. If you have any type of financial statement you have a potpourri of options to choose from. A universal metric that works for any business is Revenue per employee. But depending on the type of business manufacturing, service, high inventory, high rental rates, the order of importance will vary.
Examples:
- Revenue per Square foot
- Average A/R or Days Sales Outstanding(DSO)
- Return on Assets
Customers: You need know your customers. You must be getting feedback from your customers. If you won’t listen to them, they will find someone who will. Be intentional about tracking what your customers are saying about your product or service. You have worked too hard to let a misunderstanding turn into a viral rant about your company. What is your ideal customer? Is your real customer an end user or a retailer? Are you sure?
Examples:
- Track your Net Promotor Score
- Track Referrals (a strong indicator of happy customers)
- Track demographics of customers
There really is no silver bullet when it comes to determining which metrics a business should be tracking. As a business owner ultimately you and your management team need to decide which metrics are the most critical to be monitoring for your industry and why? And finally, once you are clear on the metrics you’re tracking every person in the company that can impact it should have some exposure to it and understand their role in achieving it. That is the best path to the one result you are ultimately looking for – a healthy growing business.
What are your thoughts? What would be your top three metrics? Does your company actively embrace KPI’s or other metrics? As always we value any comments in the space below.
Chris Steinlage Kansas City Business Coach