here’s an old saying, “You can’t maximize what you don’t measure”,
and it holds true in all parts of our lives.
In business, most of the time we measure in terms of financial reporting, which is part of it. But we can also measure things like personal time management, weight loss, diet and nutrition, time spent with kids, etc.
There’s a host of things that we can get closer to our goals by measuring. It all comes down to KPIs – key performance indicators, a subject I could go on for hours about!
Every business has different goals and strategies, depending on the age and maturity of the business and what the owners are trying to gain, so I can’t give you a specific set of KPIs or metrics to develop. But there are some good books on measurement and growth in a business, such as Verne Harnish’s Scaling Up.
Here’s what you need to think about: There are four measurable categories in most businesses that can have different KPIs.
1: Financial/Revenue numbers (which most people already measure).
2: Customers – Type of customer, number of customers, their transaction value, etc.
3: Processes – What you use in processing your deliverables, and their efficiency.
4: Employees – Your human capital.
KPIs need to be measurable, quantifiable, and understandable. They need to measure what you’re actually trying to achieve in each category. You should always have some kind of dashboard where you’re tracking these KPIs at least weekly, maybe even daily.
You can use color-coding: Green means you’re hitting your numbers (and we actually use blue as a separate color for knocking the numbers way out of the park), yellow means you’re not terrible, but you’re not hitting the metric and you need to put some emphasis there, and red means you didn’t meet expectations on that KPI.
Now, there’s two types of KPIs: leading and lagging indicators.
Leading indicators are predictive of what’s going to happen in the future. For example, we can measure and see if we’re not getting a certain number of clients through the door, not hitting a certain conversion rate for treatment plans, or having our numbers get marginalized by insurance companies (i.e. our net production percent is going down because we’re having to discount our pricing).
Those particular leading indicators can probably predict if you’re getting off track. If you measure the right ones, you can see when you’re getting off course and fix it right away, instead of waiting for the lagging indicators – which are more on the reporting side and measure how we actually did. It’s always better to fix something as it starts to drift, vs waiting until the quarter’s over and your CPA gives you the profit and loss sheet. 🙂
The last thing I’ll say about KPIs is that there needs to be ownership. For every KPI that you use in your business for tracking, measuring, or reporting – someone needs to own it and be responsible for it.
Now, that doesn’t mean they need to do everything related to that KPI – but they need to be responsible for reporting on that metric, and letting the team know if something goes awry. Then once the team knows, whoever else is responsible for helping with that KPI can jump in and help implement a fix. The idea is for it to be a collaborative team effort to solve the problems as they arise, rather than finger pointing, but you won’t know there’s a problem unless it’s measured and reported.
Again, you can’t maximize what you don’t measure. So formulating and determining the specific KPIs you need, based on your business goals and where you’re headed, is essential to everything you’re doing. You cannot effectively run a business without good KPIs.
And the KPIs need to be challenged and looked at on a regular basis: They’re not static, and they can change and move as your company does.
Keep this in mind, and do some more study on KPIs –
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