Business metrics are a collection of company data which monitor current performance against earlier performances or against pre-defined targets. No matter how small or large your business, they should form an integral part of your business planning process.
Business metrics highlight what is happening in your business and usually provide ample for you to take action should things not be going well. These could be as simple as monitoring your total debtors, total creditors, cash in the bank, turnover etc, against what you expected them to be.
It is frequently said that if you can’t measure it, you can’t manage it. In other words, if you can measure it, you will be in a far stronger position to make good business decisions. Whilst some business owners talk about preferring a gut feel to wasting time producing business metrics, this is a very dangerous game. Gut feel can only get you so far.
Imagine driving a car without a dashboard. You have no speedometer so you are not sure if you are about to get caught by a speed camera. You have no idea how far you have travelled. You have no idea how much fuel you have left or whether you can make it to the next garage. You do not know if the engine is overheating, which is quite likely as you have no idea what the oil pressure and water temperature is. Is one of your rear brake lights out or worse, is your brake fluid dangerously low? You are almost driving blind. When the engine finally packs in you will face a hefty bill, certainly a lot heftier than had you sorted the problem well before a catastrophic failure.
If you are a sports fan, you are probably used to being bombarded with metrics every Saturday: how many goals a player scored, how goals were leaked in the last five minutes of a game, how many minutes a player has gone without injury, how many runs were scored per hour, overs per day, runs per over, strike rates, batting averages etc.
Thankfully, business metrics do not just define if things are going wrong. They also flag when things are going right. Perhaps you are ahead on sales in a given month, the printer is producing more sheets per hour than expected and staff absenteeism is lower. These are important to know. You may well want to communicate good news to the staff or adjust your targets.
The fundamental point is that it is easy to run a business if everything stays the same. It is when something changes that you earn your crust as an entrepreneur or manager and it is your carefully constructed business metrics that tell you at the earliest opportunity about that change.
The golden rules for developing business metrics within an SME are:
- Prepare relevant metrics to cover your core strategy goals and any other goals identified in your planning. Remember, metrics work at different levels.
- Decide how you want to report your metrics, and to whom. Rapid feedback is essential and effective visuals enhance the impact.
- Only have as many metrics as necessary. Your business is not about measuring metrics, it is about making profits. Too many metrics are just as bad as too few.
- Set the ideal frequency for each business metric. Whilst monthly sales metrics might be suitable, you may wish to have cash flow metrics weekly.
- Ensure your metrics highlight issues for the business’s most relevant issues only and are easy to create, understand, explain and take up little time monitoring.
- Ensure your metrics highlight tendencies, up or down, are closely aligned to your business assumptions and are actionable.
- Be on the lookout for relevant new metrics and scrap those that are no longer relevant.
Most important of all, always act on signals from your business metrics.
