You don't have to be a data geek to understand your company's metrics, aka, key performance indicators (KPI's). Yet, in my experience, most small business owners are lucky to know only one or two of the statistics related to the health of their company. Running a business without collecting and acting upon this information is akin to driving a car blindfolded. Being well aware of the numbers relevant to the company's performance will support your decision-making process and give you a clear indication of how you and your employees need to spend your time.
If you don't know how to gather this information enlist the help of your small business accountant or reach out to your local SCORE office. Volunteer mentors are generous in sharing their knowledge and, in some cases, will use a hands-on approach to help small business owners understand how to access the information they need. Depending on what industry you're in, there may be industry-specific software available to help you track your data.
In terms of your financial statements, cash flow statement, profit and loss statement, and balance sheet are the most important financial documents to review regularly. Small business owners are notorious for ignoring these tools, yet many answers to your problems lie within them.
Cash flow statement.
One of the first things I ask my clients when they are having cash flow problems is, what's sitting in your accounts receivable? As outstanding invoices fall into the 60 and 90-day category you are in jeopardy of losing that income altogether. Stay on top of it and never shy away from asking customers to pay up.
Profit and loss.
Your P&L summarizes the revenues, costs, and expenses incurred during a specified period. A wealth of information is revealed here, and it will guide your next steps. I've had clients who invest tens of thousands of dollars in trade shows, for instance, only to find out that there is little to no return on investment in them anymore. (This is not true for every business.) One of my clients took a loss on trade shows for three consecutive years before looking at the numbers. She saved nearly 50-thousand-dollars in 2018 by eliminating the 80-thousand in tradeshow expenses. With just over 30-thousand redirected to other marketing strategies, her business saw a significant upturn in profits.
There are also important metrics related to customers:
Average lifetime value.
If you know what a customer is worth to you, you'll make smart decisions about marketing and other customer-related expenditures.
Customer acquisition costs.
Among other things, you may invest in digital and/or print advertising or pay someone to make cold calls. Whatever your marketing strategies and client onboarding processes, it costs money to find and close your prospects. You'll know how to best control these costs if you stay on top of this data.
New customer growth.
Knowing how many new clients or customers you've acquired each month tells you if your marketing strategies are working. You should also know how they found you.
Customer retention rates.
How long do your clients stay with you, at what point and why do they exit? Do they ever return? This will help to identify weaknesses in your organization, as well as help generate ideas to improve retention.
Customer satisfaction ratings.
Many business owners feel intimidated by the idea of asking customers how they are doing. Don't be. If you're doing a great job people are happy to talk about it. If you're not doing a great job, you need to know so that you can improve. Track online reviews and comments on social media. Collect data through surveys and conversations where appropriate. Remember that your online reviews can drive business; sometimes it's worth investing time and money to gather them.
Leads and conversions.
How do you acquire your leads? Put a tracking process in place to track where leads come from, which strategies have the most value, and the number of conversions achieved. This tells you where to put your money, as well as how to improve the process. If you invest in AdWords, for instance, and gain 200 leads per month but close only a small percentage of them, there's most likely something wrong with your ads or landing page. If you pay an appointment setter, but the person taking the appointments doesn't close them, you need to train them better or to hire a new person.
And, don't forget about your most valuable asset: your employees.
Traditionally, employee metrics include things like productivity, attendance, and other very measurable data points. Your employees must be engaged, and to create engagement you've got to care about them. For that reason, it's important to pay attention to how happy your employees are, inside and outside of work. It's not an employer's business to meddle in an employee's personal life, but you should know what's important to them so you can create a culture that supports their happiness and loyalty.
Naturally, there are other important metrics, depending on your business, but no metrics are meaningful if you don't take the time to study them and act upon the results. Schedule a specific day and time every week to look at this data. Once you see what a difference it makes this will be one of the most important appointments you'll ever want to keep.