How do you know if your business is improving?
For most professionals, the only way to know if things are getting better is to review the profit and loss statement each month.
The problem with relying solely on profit and loss to measure a company’s success is that this financial document misses many of the other indicators that illustrate the health of a business.
These key performance indicators (KPI’s) can be identified and tracked in just about every department within a company.
- Marketing – Every business allocates resources toward generating new leads. Therefore, you need to be able to identify where your leads are coming from and then calculate the ROI (cost per lead) from each marketing strategy.
- Sales – The most important measurement in sales is your conversion rate (the number of leads that buy). However, you should also track additional indicators throughout the sales process including number of calls, number of appointments, size of opportunity, etc.
- Operations – The figures you track from an operations standpoint are directly related to the type of business you operate. For example, if you owned a manufacturing company, you might want to measure the down time of your equipment over a period of time.
- Product/Service Delivery – As with operations, the figures you track in this category will depend upon your industry. However, there are a few constants that you should consider tracking including customer satisfaction, speed of delivery of your product or service, quality of delivery, etc.
- Human Resources – Unfortunately, this category is frequently skipped. Most business owners rush through the annual review but do very little to measure the KPI’s that illustrate their employees’ performance throughout the year. The KPI’s captured depend on each person’s job responsibilities but every leader should be able to track three important trends:
- Are they getting their work done?
- Is it completed successfully?
- Are they improving?
Chances are that if you are like most, you just finished reading the list above and concluded (sarcastically) that you wouldn’t mind tracking all of this information if you didn’t have a business to run.
In response to that statement, I would argue that if you knew each of these indicators, maybe your business wouldn’t be so difficult to run. In addition, I am certain that once you have a better understanding of these KPI’s in your business, you will find more enjoyment in your monthly review of the P&L.
As with most things in life, the solution is simple. All you need to do is execute.