Small Business Planning Pillar #7: Business Metrics
what are business metrics?
Small business metrics are a collection of company data which monitors current performance against pre-defined targets and should form an integral part of your small business planning process.
Business metrics highlight the underlying causes of problems.
These could be as simple as monitoring your total debtors, total creditors, cash in the bank, turnover etc against what you expected them to be when you last sat down to contemplate them (also known as key performance indicators or KPIs).
What do they mean for me?
As a rule, if you can’t measure it, you can’t manage it. In other words, if you can measure it you will be in a far stronger position to make good business decisions. Some small business owners talk about preferring a gut feel to wasting tiime producing business metrics but this is a very dangerous game. Gut feel can only get you so far.
Without metrics your business becomes a series of guesses. I can only guess that they have never tried applying business metrics or have tried badly. Put simply, companies that work with business metrics spot problems first. They are your small business early warning system.
Imagine driving a car without a dashboard. You have no speedometer so your not sure if you’re about to get pulled over by the cops. You’ve no idea how far you’ve travelled. You’ve no idea how much fuel you have left and whether you can make it to the next garage. You don’t know if the engine is overheating, which is quite likely as you have no idea what the oil pressure and water temperature is. Is one of your rear brake lights out or worse is your brake fluid dangerously low. You’re almost driving blind. When the engine finally packs in you will face a hefty bill. Certainly a lot heftier than had you sorted the problem well before caastrophic failure. It would be mad wouldn’t it?
I you are a sports fan, you’re probably used to being bombarded with metrics every Saturday: how many goals a player scored, how goals were leaked in the last five minutes of a game, how many minutes a player has gone without injury, how many runs were scored per hour, overs per day, runs per over, strike rates, batting averages aaaaargh!!!
Thankfully, business metrics don’t just define if things are going wrong. They also flag when things are going right. Perhaps you are ahead on sales in a given month, the printer is producing more sheets per hour than expected and staff absenteeism is lower. These are important to know. You may well want to communicate good news to the staff. Or perhaps adjust your targets.
The fundemental point about small business metrics is this: It is easy to run a small business if everything stays the same. It’s when something changes that you earn your crust as an intrapreneur or manager. And it is your carefully constructed business metrics that tell you at the earliest opportunity about that change.
Golden Rules Of Business Metrics within Small Business Planning Process
– Prepare relevant metrics to cover your core strategy goals, mini-strategy goals and any other goals identified in your planning. In other words, metrics work at different levels.
– Decide how you want to report your metrics, and to whom. Ensure they generate rapid feedback. use visuals to bring metrics alive, make them 3D etc.
– Only have as many metrics as neccessary. After all, your small business is not about measuring metrics, it’s about making profits. Too many is just as bad as to few.
– Set ideal frequency for each business metric. For instance, sales metrics might suit monthly whilst in the early days you may decide to run cash flow metrics weekly.
– Ensure your business metrics are easy to create, understand and explain.
– Ensure your business metrics take up little time monitoring.
– Enusre they highlight issues for the business’s most relevant issues only.
– Ensure that they are actionable.
– Ensure the business metrics highlight a trend ie up or down.
– Ensure they are closely aligned to your small business assumptions.
– Be on the lookout for relevant new metrics and bomb out ones who have lost relevance.
– Act on signals from your business metrics.
Examples Of Business Metrics
* Sales trend by sector (every day and weekly aggregate)
* Conversion rates at each point of your sales funnel
* Debtor days i.e. on average, how many days it takes for a customer to pay
* Creditor days i.e. on average, how many days it takes for you to pay your suppliers
* Average sales per customer
* Average production time
* Average number of calls per telesales person
* production wastage %
* average production downtime
The list is endless. Interestingly enough, preparing a portfolio of relevant and targeted metrics as part of your small business planning process itself highlights how well you understand your own business and the industry it is within. A savvy intraprenuer will comfortably compile the appropriate business metrics and prepare your business well for the challenges ahead.
RECOMMENDED FURTHER READINGThe Secrets to Writing a Successful Business Plan: A Pro Shares a Step-By-Step Guide to Creating a Plan That Gets Results
Financial Intelligence, Revised Edition: A Manager’s Guide to Knowing What the Numbers Really Mean
Small Business Planning Pillar #7: Business Metrics
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