Vital signs, those most crucial indicative measures, tell medical professionals about our current state of health. For most of us, these essential numbers are only taken during sporadic health checks, where blood pressure, blood tests, temperature and pulse give an outline picture of health and can indicate problems.
On the other end of the spectrum are athletes, where high performance is based on an in-depth knowledge of health and fitness. Like a finely tuned machine, top tier athletes have a whole range of metrics taken to measure their bodies and performances, enabling their team to constantly review and plan actions that will take those measures higher.
Are you treating your business like an athlete or just scraping by, checking the vitals and hoping it’s still living?
From what I have seen with my small business clients, most are just seeing that their business has a pulse. In the worst cases, financial performance was measured by looking at the bank balance. The better performers will check their profit and loss sporadically, although this is rarely in a periodic manner. Annual financial statements, by the time they are processed, include information that is already more than a year old; the business could be terminal by then. Probably the best business I have seen has a structured weekly collection of data from all parts of the business, measuring everything that moves, such as average rates on revenue, non-billable items, time use by all employees, budget comparison and a whole lot more.
Data, data and more data
Data on its own is useful, but where it is truly powerful is identifying trends and changes, positive and negative. Your average rates could be going down (which will need action) or up (meaning you can do more of what you are doing). Seeing patterns early empowers business owner to make decisions and take action before a trend becomes a problem. If you wait for it to show up in your bank balance or P&L, the emerging pattern has already cost you money.
A repair business client of mine has been collecting booking and marketing data for 10 years, so when costs of client acquisition started to creep up, we were quickly able to identify that Google costs were increasing and marketing diversification was needed to get costs down. Another client tracks all conversions, including conversions from web visitor to phone call – which enabled us to test different web content for the greatest impact. Staff retention, in another business, was causing headaches. By comparing the previous 5 years, they quickly worked on new strategies and identified the causes.
It’s all about habit
Let’s be honest, poring over your results every week and extracting information is not the most fun job, but discipline and habit is the only way to make this effective. Measure as many of the moving parts in your business as you can and track regularly, ideally weekly. That means everything from web stats, conversions, sales, average sales, staff performance data, injuries and downtime to leave totals. Once you have the tracking habit in place, spending a few hours each week is worth more to your business than you probably spend on marketing or consulting, for much greater benefit. Set up easy to follow spreadsheets and systems and get someone in your business to do it, week in, week out. If you have somewhere public in your business to display your numbers so everyone can see, that is even better. Data is powerful because you have it ready when you need to look at changes in your business over time – if you start collecting when have a problem it’s too late.
Owning a business requires an incredible dexterity in skill and attitude, to keep on top of a staggering array of functions at the same time. Metrics give you the power to know what is happening and the power to make effective decisions, so the more you have, the more power you have. If you would love to have a business that performs like an athlete, just checking its vital signs won’t be enough.
Dr Warren Harmer is based in Melbourne and owns The Business Plan Company he is the author of Business Planning for Small Business.