I am getting slower, there is no doubt about it. I have been keeping track of my cycling times for the same routes for over five years and each year my times are slower. Since I turned 50, five seasons ago, my climbing is noticeably slower by a minute or two for the same hills, and my times on the longer distances is measurably more sluggish.
However, there are other areas in my life where improvements are happening. I am taking more days off to spend with my family, I am exercising more, and I am connecting with more clients.
This week I was working with several clients, who are not measuring as much as they should be. Their idea of business measurement was how much money they have in their bank account. While this is important, it's like measuring how many cookies are left in the cookie jar without having a clear understanding of what it takes to make a cookie, how many are in a batch, and when the next batch is going to be made.
Measuring is important for a number of reasons.
1. It gives us perspective about our progress compared to a similar previous period.
2. It allows us to use targets to motivate and educate our employees.
3. We have something to celebrate if our numbers improve.
4. Measuring helps us determine when we need to change our strategies.
So, what should we be measuring?
Every industry differs, but there are certain key measurements that every management team would benefit from measuring.
How are we doing compared to the same period last year?
Whether we are measuring our production, our sales, the number of people we have reached, or our donations if we are a non-profit, must be compared with the same period last year. This gives us a clear idea about our business trend.
Is our performance acceptable considering the economy, trends and changes in our industry?
What is our average sale?
In retail this is a common Key Performance Indicator (KPI) however, we should all be looking at the average sale of our business in every industry. Comparing our previous year, and industry benchmarks, gives us an idea of our potential for growth with our current customer base, and indicates the trend for our business year over year with our customers.
If you don't know your industry benchmark, ask the owners of similar businesses in other communities. Not only will you get a better understanding of your own business but you might be surprised about how you compare with other similar businesses.
Gross margin: Our gross margin is the difference between our selling price and the cost of our goods or services. Every industry has its own standards but getting clarity on what yours is and knowing what it should be will allow you to make the changes needed to ensure profitability.
Net Profit: How much money are you making at the end of each month, quarter and year?
If you are running a business you will want to measure this compared to your previous years but also have a clear understanding of what is the expected rate of return for your particular type of business. Without making a profit, you will be unable to hire and pay your employees, pay back your loans on investment, and create a profitable business that you can sell when you retire.
Other key measurements might include, your return on your marketing investments, the number of referrals you are getting on a regular basis, your bid success rate, your production per employee hour, your basket size, percentage of vacancies, or whatever is going to be significant and meaningful to you and your staff.
Unless we measure, we don't honestly know how we are doing or what is changing as a result of our efforts.
Most small organizations don't measure enough while many large organizations probably measure too much. Measurement can make a difference although while I might measure my cycling times, I am not measuring my weight or my consumption of chocolate, which I believe has possibly increased. However, like different aspects of business, some things are better left unmeasured.
Dave Fuller, MBA, is an aging cyclist and award-winning business coach. He is the author of the book Profit Yourself Health and measures the success of his articles by how many people comment at dave@profityourselfhealthy.com.
