How Do You Measure Success?
Posted by Laddie Blaskowski on May 28, 2009
New clients often ask me how they can accurately determine the success of various areas or divisions of their businesses. This is always an important question for business owners and professionals, but especially important in the current economic environment for companies needing to hunker down, cut costs, and maximize profitability.
I’m a firm believer in tracking various areas of your business and have coined what we call a BusinessTruth®: If you can’t put a number to it, you can’t measure it!
Measuring or tracking elements of your business offers many important benefits because it gives you a better understanding of how your business is functioning overall, as well as providing information about various areas. It can help to increase your profits and improve your cash flow, and move you towards a more effective operation. It can also indicate where valuable resources, such as time, money, creativity, etc. may be wasted.
Let’s look at two important areas that I believe should be measured: Financial
Your current monthly financial statements are obviously a big part of financial measurement, but they only tell part of the picture if they are not compared to other information. To gain a clearer understanding of how you’re doing, you also need to look at how your company has performed in the past. The point of these comparisons is to come up with measurements that show how you’re doing financially and point to trends for the future.
To dig deeper, it’s important to look at your percentages of sales, expenses, and profitability by tracking them by the job, by divisional statements, and by product lines. By dissecting the company in this way, you will have a greater understanding of which parts of your business are most successful and which parts need work.
Obviously, financial statement accuracy is extremely important. Over the years, I’ve seen inaccurate and/or outdated numbers, too much data or not enough information, or an unclear understanding of the numbers and what they mean. If the information isn’t accurate or you don’t understand it, it won’t be helpful to you. So if you suspect you’re not looking at accurate numbers or don’t understand what you’re seeing, get some help from your accountant or consultant.
When working with clients, I recommend using 12-month trailing charts and regularly updated monthly projections. These give you a clear understanding of how you’re doing and where you’re going. Many people find these financial tools confusing at first so if you don’t understand how they work, I offer complimentary 30-minute consultations and would be happy to explain them to you. Just call our office to schedule a consultation (719-260-7170). Sales
Sales are important for every business in every industry because without them (or enough of them), there is no business. The four key areas of sales that I believe should be measured are:
1. Leads. Begin tracking who your prospects are and where they come from. By tracking how your leads are generated, you’ll be able to answer questions, such as where the majority of your leads are coming from, whether you’re finding the right kinds of leads, and whether your marketing efforts are working.
2. Leads converted. Next begin tracking how many of your leads are actually turning into customers. Look at how many contacts and what types of contacts are leading to conversions. How many leads are closed by your sales staff versus your stepping in as the owner of the company? Also determine which elements of your closing and follow-up processes are leading to conversions.
3. Average dollars per transaction. Measuring the dollars received per transaction helps determine the success of your sales efforts, the success of different divisions in your company, and where your sales and marketing dollars need to be spent. It can also help you determine whether your pricing structure is sound or needs to be updated.
4. Average transactions per customer. Are you getting the most out of your existing clients? If not, you may be missing a great opportunity to pick the “low hanging fruit.” Tracking average transactions per customer will indicate whether your customers are coming back, and whether your cross-selling and follow-up efforts are successful. It will also give you a good indication of the quality of your product(s) and customer service.
The important thing is to determine the areas of your business that are most critical, and then begin measuring their different elements to determine their success levels. Measuring key elements in your company can go a long way towards maximizing its efficiency and profitability, and making it truly successful.