Is it true that "What you measure, you can manage?"
Every business owner has a few numbers that are constantly going around in their head:
- Cash available
- Income needed
- Expenses that must be paid regularly
- Cash desired!
That’s keeping it very simple – but we know it often does come down to asking, “How much cash do I have?” and “How much cash do I need?”
Managing a business requires so much more than simply knowing whether you have enough cash to survive.
One of the terms used for the most important numbers in the business is “Key Performance Indicators” (KPI’s). KPI’s measure a business' success at achieving its goals in many areas – operations, finances, people, marketing, and more.
KPI’s are not just scorecards that you look at once a year after everything is finished. They need to be monitored regularly – some of them daily – and only then will they enable you to make changes in the business. All the best companies know exactly what their critical numbers are, right down to the second and third decimal. How many customers expressed an interest? Made a purchase? Used a coupon? Failed to buy? Purchased an extra item? Every number makes a difference when it comes to making management decisions the next day.
It’s not just the finances, either. Knowing things like the time it takes your customer service team to respond to phone calls or incoming questions, or how long suggestions wait before they are implemented, can help you build a better business that much faster. We all know what happens to time when we don’t pay attention to it – it flies past so quickly that we’re absolutely shocked to discover that it’s March. No, it’s October. Suddenly, it’s Christmas. “Where did that come from?” we say, even though the days and months and seasons have gone by in the same order every year from the beginning of time.
Here are some of the critical numbers that every business should be monitoring:
- Number of prospective customers
- Conversion rate (converting prospects to customers)
- Average transaction value (amount spent by buying customers)
- Break even point
- Accounts receivable days
- Current ratio
- Return on equity
Some of these are very simple to monitor, and others require a bit more effort. Some of our clients have turned their businesses around by looking at the right numbers, not just the ones they always thought were the most critical.
If you measure the numbers appropriately, it’s far more likely that you’ll get to where you want to be in terms of profit – and cash. And then you find you’re achieving that ‘Cash Desired’ number so much more quickly! Doesn’t that sound good?
We’ll be discussing what numbers are most critical to your business in our upcoming Business Builder webinar. If you have time, please join us!