What gets measured and reported can be improved……
We’ve all heard the old adage that knowledge is power.
How much of your business performance do you make assumptions on?
How many times have you said, “Well, I think we’re doing ok….” Only to find out a year or two later that actually, there’s a huge part of the business that you made too many assumptions with, and slowly it drifted out of effectiveness and is now an uncontrolled mess that needs sorting out.
Let’s face it, none of us need to be taking time out of our week to carry out unproductive analysis and reporting, we’re far too busy.
But busy doing what? Getting work in, getting paid, getting leads dealt with, getting quotes and proposals out.
When did you last measure how many and how good any of those activities are, and how they are serving your bottom line?
Unless you know exactly how many leads are coming in, how do you know it’s going to be enough to feed your goals and targets?
As well as how many, do you know what the quality of those leads are? How many do you reject before even considering if you are going to turn them into paid work?
A high rejection percentage of leads indicates improvements that can be made in marketing.
Do you measure how many of your proposals are converted into paid work?
This conversion can tell you many things. Are your prices right, are you pricing into the right market, is the person producing the proposals getting it right?
Measuring these parts of your business can be so easy if you have the right tools and your systems are being used correctly.
Regularly measuring KPI’s has actually picked up on a fault on my website
A decent CRM system will work away in the background to keep track of all of these metrics, and a report can be produced weekly or monthly to give you the Key Performance Indicators (KPI’s) on how your business is performing.
KPI’s can be anything that you decide give you a true measure on the parts of the business that can be measured and compared against either past performance and/or future performance and targets or budgets.
I’ve been measuring the activity in my roofing business since 2014, so I now have 4 years performance to compare data on.
I can see at a glance the quality of my leads, how many of those turn into paid customers, how many of them convert into a survey, and then a quote.
I can see how many leads I reject to get a feel on how effective my marketing is to the right customers.
I can measure how much I spent on google advertising and divide the number of sales won through google as a lead source to see my cost of marketing per sale.
The intention is that the cost per sale should come down as my marketing becomes more effective through constant tweaking and optimisation of my ads and content.
After 4 years, the time it takes to produce my KPI’s every week is around 20 minutes.
I can then see at a glance exactly what is going on in the business.
Regularly measuring KPI’s has actually picked up on a fault on my website, where it stopped sending leads to my CRM system for a few days. I knew this within a week because there was a huge drop in my numbers and we investigated straight away.
I have had situations like that in the past where these faults have gone unnoticed for months.
Knowledge is power!
In the Sales & Marketing Department of your business here are some of the metrics to measure:
Leads in – Know what a lead is worth in terms of turnover to see if you’re in line with your monthly target.
Rejected Leads – How many leads do you get from customers you don’t want?
Appointments/Consultations – How many of these turn into customers? Are you having enough meetings?
Quotes/Proposals – How many do you produce a year and what percentage turn into work?
Orders – How many orders do you get a month? How many do you need?
You can then work out your conversion rates to gauge the effectiveness of each part of the process.
Number of sales divided by number of leads will give you Lead>Sale conversion rate (%) use this benchmark to track the quality of your leads, sales process, sales person.
Number of sales divided by number of appointments will give you a percentage that can be tracked to gauge the effectiveness of your sales staff (or your own selling performance).
Number of sales divided by number of proposals will tell you the conversion rate of quotes you produced to win a sale – this is a biggy.
If you need more sales in your business, you need to produce more quotes. If you need more quotes, you will need more leads – this equation can be worked backwards to tell you how much you need to spend on marketing, but only if you know your numbers.
The real power of measuring comes after the first year or two when you have some actual data that will help you predict the future more accurately
Another area to measure in your business is your production.
How much activity is going on, and in what units?
Do you sell a product or service? How can you track how many units/hours/products you need to sell to get past your break-even point and into profitability?
Without measuring, you are hoping. It works for some businesses, but if you want to expand or sell your business, these figures need to be measured and recorded.
You may find it very difficult to exit your business or attract outside investment if you are working on hunches of whether you are profitable or not.
Measuring also keeps us accountable. It’s a benchmark that we have to meet to ensure we meet or exceed targets and can also be used as permission to give ourselves either time off, or time out to focus on other important development work if we know we’ve already hit our quota in a period.
Financial KPI’s are by far the most important numbers to follow. If we don’t keep the business in the black, we won’t be in business for long that’s for sure.
Your profit & loss statement is a set of KPI’s, they can be simplified to a few key numbers, so you can make simple and clear decisions. Gross Profit is one of the most important as mentioned in last month’s article.
By far the number one KPI in any business is Net Profit. (Unless you are a charity)
Without this, there simply isn’t much point in being in business.
Next Month we’ll look at a Budgeting. . . Then it’s on to Cash Flow and Communication Structure.