One very common phrase that consultants (like me) love is “you make what you measure.” Too often, small businesses aren’t performing as well as they should be and could be simply because they’re not tracking that performance. Not only does tracking performance clue you in early on so that you can make adjustments to strategies that are not working and capitalize on strategies that are successful, but also, it makes a very clear statement to everyone on your team about what is important. That’s where “you make what you measure comes in.” If employees know that x metric is important, they’re more likely to focus on maximizing that metric. If there isn’t a clear goal because there isn’t clear tracking, employees may not be as focused on the things that you want them to be focused on.
It’s actually pretty surprising how many entrepreneurs don’t do this. If you were organizing a bake sale for your kid’s school and the goal was to raise $1,000, of course you would be tracking how much money you were raising as you made progress towards the goal. Along those lines, a typical business owner can tell you what revenues are from month to month, which is obviously extremely important.
Unfortunately, in the business world, not all metrics are that simple and focusing only on that number can lead to a whole host of disasters that you won’t catch until they’ve already been brewing for quite some time. What if you were only measuring sales at that bake sale, but hadn’t taken into account the cost of each cupcake and cookie you sold (assuming they were not donated)? Then that number you’d been so diligently tracking wouldn’t actually tell you what you needed to know because the money you brought in is not the same as the money you made. For all you know, you could have been selling the goodies for less than it cost you to get them.
Additionally, even those business owners that make a genuine attempt at measuring a variety of business indicators often don’t choose the right metrics to track and/or don’t analyze them appropriately. A couple of weeks ago Avinash Kaushik wrote a great post addressing just this issue. He gives some great examples of metrics that well-meaning CEOs decide to track in an attempt to improve performance but that actually result in trouble. His examples are focused on website metrics, but the concept is applicable to any type of business.
For example, are you tracking just your sales team’s total and average sales or also the total and average profit that they contribute? What if your “top” salesperson sells zillions of your widget with the lowest margin to hit the highest sales numbers while someone ranked in the middle of the pack based on your current analysis actually makes more money for you by selling a lower total dollar amount of a widget with a huge profit margin? Well, maybe you’d want to switch up who keeps winning those performance bonuses so that you keep Ms. Profit happy as opposed to keeping Mr. Revenue happy and potentially losing the real money-making team member to a competitor.
Take a moment to sit down and ask yourself the following questions to determine what metrics you should measure:
- What are your goals for your company? What do you consider success on a daily, weekly, monthly, and yearly basis?
- What factors go into creating that success? (Make sure to take time and list ALL factors).
- Do you currently measure performance related to each of the factors listed in question 2?
If you do, good for you! If not, start measuring!