I find that a lot of business owners operate their business on 'hunches', or assumptions about the way that things are. What if you could focus on 3 things in your business, and use them to drive huge results?
There's a common adage in business that 80% of your revenue will come from 20% of your client base.
In my experience coaching businesses, it's not always true. However, it does raise an interesting question - do you know where your revenue comes from? Asked another way: how well do you know your business, your business model, your clients, and how well it performs overall?
Some questions that metrics could help with
Think about how everyday decisions are made:
- "I have a technician employed, whose spare time is better spent cleaning the store than driving around to clients who probably won't buy anything"
- "Investing in a new IT system is not worth it"
- "Sending out a targeted SMS marketing campaign costs $300, and that's not worth it"
- "Presence is everything, so we're opening a new store in that shopping centre".
Everything you do in business is an investment. Every minute you are spending money. You are choosing whether you spend that money on a range of activities - meetings, phone calls, administration, lead generation, client retention, marketing etc. Good data (note here I say "good", not "lots" , and not "hard to collect") can add a significant level of insight into how you go about your business.
3 data collection activities
For me, data activities fall into 3 loose categories (this is a simplification/translation of some very complicated models that people sell):
- Collection: Bringing the data together
- Analysis: Getting the data to tell you something
- Monitoring: Once you have made changes, are they having the desired result.
Having a customised set of performance/business intelligence metrics which tell you useful things can transform your business. Data turns hunches into evidence-informed decisions, manages risk, and protects against faulty assumptions.
2 metrics used in business
To give you some examples of custom metrics I've developed with clients (relating to the questions above):
- How best to spend staff time - relationships or store presentation? We took a random sample of clients who lived nearby and averaged their spend across a year. We then broke the clients into three groups - one group who had call-in's from the technician across winter, one group who received texts across winter, and another group that received nothing. We were interested in whether the spend of the group who the technician built relationships with spent more than average. Client average spend is a metric that has been used at several other decision-making points across the business. This also helped to determine the yearly yield of SMS marketing campaigns.
- Is it worth investing in an IT system? The costs of IT systems and software can seem high, but the inefficiencies and wastage across the business can often be hidden. In this particular business, we needed a way to benchmark electronic inefficiency, and decide whether a new system would improve things. To measure this, we looked at the number of conflicted (duplicate files where multiple users had different versions) on the server, and the number of emails by month with an attachment with "v." or "version" in the title. As the business had grown, so had the number of conflicted files and the number of versions of documents flying everywhere. The average email trail length around a "version" attachment was also very long, showing that there was lots of discussion around various versions of documents. Once we started to realise the extent of duplication and communication around version control, the cost of collaboration and cloud storage didn't seem so high after all.
three steps to design your own business metrics
In my opinion, there is no one-size-fits-all approach to metrics - they are best designed based on the needs of the client. If you want to do this, I would suggest the following:
- What questions do you need to answer? Be very specific, and ask all of the people involved around the problem - different perspectives can open up new possibilities;
- What data or indicators will tell us what we want to know? I usually believe all of the data already exists if we can work out how to access/use it.
- How can we produce something useful to us? How can the data be displayed or translated for those who need to use it? All of the data in the world is no use if you can't get it in the right hands in the right way.
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