Without measurement, your business is flying blind
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I’m getting slower; there’s 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. My climbing is slower by a minute or two for the same hills, and my times on longer distances are noticeably more sluggish.
However, there are other areas in my life where improvements are happening. I’m taking more days off to spend with my family, exercising more, and connecting with more clients.
This week, I worked with several clients who weren’t measuring as much as they should. In fact, a recent survey from Salesforce revealed that 60 per cent of small businesses still rely on cash flow as their primary metric, often overlooking other vital indicators of business health. Like many, their idea of business measurement was simply how much money was in their bank account.
This is important, of course, but it’s like measuring how many cookies are left in the jar without understanding what it takes to make a cookie, how many are in a batch, and when the next batch will be made.
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Today, measuring is more essential than ever for several reasons:
- It gives us perspective on our progress compared to a similar previous period.
- It allows us to use targets to motivate and educate our employees.
- We have something to celebrate if our numbers improve.
- Measurement helps us determine when we need to change our strategies to respond to market shifts.
So what should we be measuring?
Every industry has its unique metrics, but there are key indicators every management team should focus on tracking. Digital tools now make gathering and analyzing these metrics easier than ever, offering a more comprehensive view of business health.
How are we doing compared to the same period last year?
Whether we’re measuring production, sales, client outreach, or donations if we’re a nonprofit, these numbers should be compared with last year’s. A clear year-over-year comparison tells us if we’re on the right trajectory. In an era where the business landscape shifts rapidly, tracking these trends helps us stay competitive and responsive.
Are we performing well, given today’s economy and industry trends?
Knowing our numbers is only half the equation; understanding them within the context of economic and industry trends completes the picture. The past few years, marked by high inflation and fluctuating supply chains, remind us that our metrics must be evaluated within a broader context.
What’s our average sale?
In retail, average sale values are essential, but they’re also relevant across industries. With access to more granular data analytics, we can drill down into customer segments, identify which products or services are most profitable, and refine our offerings accordingly.
Gross margin
Gross margin – our selling price minus the cost of goods or services – remains one of the most fundamental measurements of a business’s health. Regularly monitoring and adjusting gross margins, especially in a time of fluctuating costs, ensures we protect profitability.
Net profit
Tracking monthly, quarterly, and annual net profits allows us to assess long-term viability. Whether reinvesting profits to grow, paying down debts, or preparing for retirement, net profit should be regularly compared to industry benchmarks and prior years.
Return on marketing investment, client referrals, and other key metrics
Today, digital marketing channels have given us the ability to track exact returns on marketing dollars, with small businesses, in particular, benefiting from tools that measure everything from ad performance to client referrals. If we’re not tracking these, we’re essentially leaving money on the table.
Unless we measure, we don’t honestly know how we’re doing or what’s changing due to our efforts. Small businesses may not measure enough, while many larger organizations may measure too much, creating “analysis paralysis.”
Measurement makes a difference. And although I track my cycling times, I’m not measuring my weight or chocolate consumption, which may have increased. Like some aspects of business, there are things we’d rather leave unmeasured.
David Fuller is a Commercial and Business Realtor with a strong reputation as an award-winning business coach and author. He has extensive experience helping businesses grow and succeed, guiding various aspects of business management, strategy, and development. His work as a business coach and author has earned him recognition in the industry, making him a respected figure in both real estate and business coaching.
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