How do you know how well your small business is doing? Do you look at profit? Do you look at your sales numbers? Do you measure growth?
Most businesses use monthly financial statements, which include sales revenues. Some compare those monthly results to the plan and/or to the previous year’s results. All business should continue to use that information to manage their business. However, all small businesses should also include more significant key performance indicators as part of their measurement process. As a small business owner, managing-by-measuring performance is a significant key to your success.
Develop a set of key performance indicators (KPIs) to track your business growth and success. These measures will keep you focused on your business goals. When you write your business plan make sure that you include measurable goals and objectives. Then set in place a system that will provide you with regular indications of performance.
KPIs can be easily developed and monitored however each business needs to customize the measurement process to their own business needs.
Here are just a few KPIs you can consider for your business:
- Number of orders in a day/week/month/year
- Number of estimates in a day/week/month/year
- What kind of ‘win’ ratio does your business enjoy (e.g. do you ‘win’ 15% of all estimates – track this data)?
- How long does it take for you to respond to customer queries: estimate turn-around times; order processing; time from order placement to order delivery; responsiveness in handling customer complaints; and so on?
- How often do you hit your ‘promise’ date (i.e. the date you promised to deliver the order to your customer)? Analyze the ‘misses’: ship dates you don’t make. Are they with one product line? Or with one customer or type of customer? Or with one employee?
- What kind of employee turn-over rate do you have?
- What kind of customer turn-over rate do you have?
- Percentage of business your largest customer holds?
- Sales by customer
- Sales by customer by product
- Sales by product
These would be in addition to your regular monthly financials but consider KPIs more of a daily or weekly measurement. Set up KPIs to help you see what is going on in your business presently and to help you forecast the near term (this week, this month, next month). If you track some of these statistics daily you will begin to develop trend lines that will highlight both the positives and negatives of your business growth.
Once you start to collect the data, it becomes much easier to see where the problem lies. If you are a manufacturer and you are always late delivering to your largest customer, find out why. Analyze your process. If you are a distributor and you are always late delivering a certain product, find out why. Is your supplier always late? Do you need to carry more inventory of that item? Or in both these examples is it because your employee turn-over is particularly high in the shipping department? Why is turn-over in shipping high? Are you hiring the right people? Are you under-paying? Does your shipping supervisor have weak people skills?
Developing good performance indicators will help you identify and solve issues quickly. Once you have developed KPIs that are aligned with your business goals, and once you track your performance regularly, you will be in a better position to manage your business.