Using Key Performance Indicators (KPIs) will give you a very good sense of how your business is doing.
This is part 3 of a 7-part series.
Part 1 | Part 2 | Part 3 | Part 4 | Part 5 | Part 6 | Part 7
To watch the full video, check out:
Keeping Track of Numbers in Your Business
Every business owner needs to be aware of the numbers that impact its growth, barriers, and opportunities. You can evaluate these figures once you’ve determined who your Ideal Customers are — individuals who fit your philosophy, who receive benefit and recognize the value you provide, and who are happy to pay you on time.
Once you’ve decided which customers generate the highest profit, degree of satisfaction, and growth, you can use this to recognize the numbers that can help or hurt your business.
This essential data starts with individual numbers, and proceeds up a ladder to interconnected ratios that will lead to your ultimate goals.
Here is a picture of what it looks like:
Your most important business numbers begin with…
Measures (a single point on a graph)… which are used for
Metrics — a ratio that compares a measure with:
- movement (growth or decline),
- quality (increase or decrease),
- engagement (higher or lower), or
- another numeric relationship in the company… from which you select
KPI (which stands for Key Performance Indicator) — ratios that “move the needle” in a company by helping it to reach its ultimate goals… from which you focus on
Critical Success Factors — decisions that are vital to making the strategy work… which lead to
Goals and Objectives — essential business targets include Goals (where you’re headed) and Objectives (how you’ll do it).
KPIs to Collect
As we’ve discussed, KPIs are important ratios that show whether your business is moving toward goals or away from them.
Consider tracking these KPIs in your business:
Accounts Receivable (A/R)
Review your monthly “buckets” of unpaid invoices. Also review outstanding payments by
- payer or insurance type (if you accept insurance),
- by service or product type, and
- by customer category.
Sales Targets
Make sure you are reviewing whether you’re reaching sales goals every quarter, every month, and every week.
Find out if your cycle is affected by seasonal shifts, by economic changes. Identify how many sales are from new versus returning customers.
Financial Expense
Look at the times when you purchase things for the business.
Do you buy when you also bring a high amount of profit, or are you buying a lot during “lean” months? (This is also something you can check in a Year In Review).
Time and Personnel Expense
A lot of business owners don’t consider the percentage of available hours that are scheduled and billed with customer appointments.
What is the net profit for each type of service? Which of your tasks are the most profitable (and move the needle toward growth)?
Valuable Customers
Which of your customers generates the highest profit? What services do they use?
Which additional services or products would they like to buy from you? What do your most valuable customers say they would change about the current services/products, or wish they could buy from you?
There are so many ways to slice data; these are just a few of them.
To be successful, I believe a business should have 2 to 3 main KPIs. Make sure you are tracking your KPIs regularly to see whether adjustments are needed. A dashboard can help you to immediately visualize whether you’re moving toward your ultimate goals or not.
Estimating Profit Margins
In my own experience, the Customer Rating System helped me decide which of my clients had generated the high profit margin for me. Not just the highest sale amount, but the profit that was left after deducting expenses.
I realized that some clients did not require a lot of time and energy, and they produce the highest percentage of profit. But other projects required a lot in raw materials, setup, research, and preparation; and at the end, I didn’t have much left over. In some cases, I actually lost money.
So consider:
What is the expense versus profit margins for each of your customers?
Do you enjoy working with them but realize that you’re losing money?
That is going to be a really important question to consider. You don’t want to work for free. Keep building toward your goals, even if it means saying goodbye to current customers.
Read more: What to Do When You Realize Your Customer Is Not a Good Fit
What is the best outcome you can get from the lowest amount of effort?
Which services can you offer that are hands-off, high-value, and provide residual income? If you’re doing that right now, how can you improve the process?
What type of customers are advocating your business?
Some of your buyers are excited about the value you provide, and they want to actively recruit new customers by sharing their story with others. These are your cheerleaders — and they can bring a lot of low-cost growth to your business. You want as many people like this as possible. Look for ways to amplify their feedback to attract other buyers.
Tune in to the next post in this series, in which I share my opinion on why you SHOULD turn people away. Read it here.
If you are interested in hearing how you can reverse a toxic workplace, find out more here!
Grace LaConte is a business consultant, writer, workplace equity strategist, and the founder of LaConte Consulting. Her risk management tools are used around the globe, and she has successfully reversed toxic work environments for clients in the healthcare and non-profit fields. Grace specializes in lactation law compliance & policy development, reducing staff turnover after maternity leave, and creating a participatory work culture.
Find more at laconteconsulting.com, or connect with her on Instagram and Twitter @lacontestrategy.
Grace LaConte
Grace LaConte is a marketing strategist, writer, and speaker. She is the founder of LaConte Consulting, which offers guidance for manufacturing owners who want to improve their profit, growth, and value. Grace also helps accounting and finance professionals to become top-tier business consultants.