Starting up or growing a business takes a lot of time, energy and effort and for business owners there are many pressures and distractions contending for your attention.
This makes it important to have a set of metrics you monitor, that help to provide clarity of focus and the assurance that the business is heading in the direction you intend it to.
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Without clear goals, targets and measures to keep an eye on driving your start-up business, you’re more likely to get stuck in day to day issues and less likely to spot opportunities and problems early on.
This leaves the direction and evolution of your business at the mercy of external pressures from clients, competitors, suppliers and general market conditions.
Don’t let these issues, or external people, drive your business. You need to take control of your own destiny.
Having the right metrics in place allows you to direct your resources where they will be put to best use; monitor your progress more clearly and closely; and use actual data as an effective decision-making tool to drive business performance.
You can waste hours every week, month or quarter capturing and analysing the wrong data.
This creates a lot of activity, but provides little benefit. To avoid this, address the following three questions from the outset:
- What are your company goals and objectives?
- How can you best measure them?
- Who across your business can influence achieving those goals?
The goals of your business need to be set and agreed to by the owners, management and key advisors or mentors.
Achieving consensus is vital to ensuring the key navigators of the business are all headed in the same direction and are articulating the objectives of the business consistently to all stakeholders.
With your goals and objectives set, you need to determine how to measure your progress against those goals. Break your goals down into short- and long-term quantifiable targets.
As a start-up your targets might include:
- Total number of customers acquired each month.
- Number of customers by segment (product line/geographic region/distribution channel/referral source/new or repeat business).
- Conversion rates from enquiry to meeting to sale and repeat sale.
- Cost per lead/sale/or click (if you have an online presence).
- Potential lifetime value of the customer.
- Average transaction value by customer.
- Profit (per sale/by product or service line/customer segment).
- Number of purchases per customer.
- Referrals per customer.
- How many new customers remain with you (retention rate).
- How many customers you loose and when (churn).
- Product return rates, customer complaints or other measures of quality.
You may not be completely sure of what targets are realistic. However, you should set your best “guestimate” as something to aim for.
You can always revise your targets when you have some actual data gathered and a better idea of what you can achieve.
Once you have set your goals and targets, build monitoring of them into your financial reporting and business management processes.
If you have a monthly or quarterly management meeting, include some simple understandable reports and discussion of your progress in those meetings.
Don’t be afraid of results that show you aren’t hitting all your targets as you had initially expected. Having that information allows you to identify where you are achieving the best results and have specific discussions about what you might need to change to improve performance in other areas.
It also gives you the hard data to make confident decisions about the strategy and direction of the business.
If you’re a sole business owner, it’s just as important to monitor your progress. Block time out in your own diary to get above the day-to-day issues and review how your business is tracking.
You might find a mentor, confident or advisor to act as a sounding board.
Apart from setting your goals and monitoring them at a management level, you should also share them with your team.
Whether or not you choose to share all your goals including revenue and profit is up to you, but sharing them is beneficial for a few important reasons:
- It makes you accountable to achieving those goals
- clarifies priorities
- ensures your team has the same common focus and;
- develops a sense of urgency in achieving the targets.
So, who’s driving your business?
Marc Peskett is a partner of MPR Group a Melbourne based firm that provides business planning and advisory services as well as tax, outsourced accounting, grants support and financial services to fast growing small to medium enterprises. You can follow Marc on Twitter @mpeskett