Using Key Performance Indicators
Maybe you don’t think of yourself as numbers person. Maybe math was your least favorite subject in school. Maybe you hate spreadsheets.
Unfortunately, if you own a business, you are a numbers person. Business is a numbers game, and companies live and die by their numbers.
Don’t worry, though, working with numbers is not as unpleasant as you think. And we can help you.
There are two types of numbers you need to consider: those that tell you what happened and those that tell you what is likely to happen.
Business is a numbers game, and companies live and die by their numbers.
Running your business by looking only at your financial statements is like driving your car while looking only in the rearview mirror.
Financial Statements – What Happened
At the end of the month you probably review your company’s financial statements. These include your Profit & Loss Statement (also known as an Income Statement), Balance Sheet, and Cash Flow Statement. Think of them as your company’s report card – they tell you how you performed during the month (or quarter or year). They are the reports a lender will scrutinize when you apply for a business loan. If you are not reviewing them on a regular basis, you should.
The problem with financial statements, however, is that they tell you what happened in the past. Looking at them is like looking at the rearview mirror in your car. They are good at telling you where you’ve been, but not at telling you where you are going. Running your business by looking only at financial statements is like driving your car forward while looking only in your rearview mirror. Sooner or later, you’re going to get off course.
Key Performance Indicators – What’s Likely To Happen
There is another type of number that is much more important to business owners. It is the Key Performance Indicator (KPI). A KPI tells you what is likely to happen in the future. Most businesses have several KPIs. In fact, most disciplines within a company have their own set of KPIs. For instance, Marketing may have KPIs related to the number of leads generated, the number of times they appear in an online search, and the number of marketing emails opened. Sales may have KPIs related to the number of proposals submitted, the number of contracts signed, and the average dollar value of signed contracts.
KPIs drive the numbers that eventually appear in financial statements. For instance, KPIs such as leads generated, proposals submitted, and contracts signed lead to revenue, which is a major factor in financial statements.
No matter how big or small your company is, you need KPIs to drive your business toward greater success. The easiest way to monitor KPIs is to have a dashboard that displays them for you graphically. As the owner, you should review your KPIs at least once per week.
It’s not enough to have and measure KPIs; you need to understand the numbers that feed them and then do the activities that lead to good KPIs. You should take corrective action if a KPI starts to slip. (For instance, if the number of new leads begins to fall, you need to figure out why. If you don’t, sales will eventually fall.)
Most business owners spend too much time looking at the numbers that tell them what happened and not enough time looking at numbers that tell them what is likely to happen. Contractor Success Hub recommends that you give more time and attention to developing, monitoring, and driving KPIs than to reviewing financial statements.
Developing KPIs can be challenging. What should you monitor? How do you monitor them? How do you know what corrective action to take when they slip? Contact Contractor Success Hub. We can help you implement KPIs and systems to effectively monitor and manage them. If you want your business to be successful, you have to manage its KPIs.