Business Metrics are critical for creating clear information to support your decisions.
Unfortunately, getting into the maths often makes people run – here are metrics made really easy, without the geek-speak!
Firstly, a quick definition : “Taking standardised measurements produces metrics“
so don’t get put off metrics are just numbers!
Example: A tailor takes your personal measurements for a new suit – the tape-measure goes around your chest, waist, hips, leg length, and what you get is your personal metrics in inches or centimeters; the numbers are just the results of taking measurements using a standard measuring system.
This need not be complicated – in fact it is best when it is simple.
I can’t begin to guess the number of clients who over the years have started out by saying – “I’m bad at maths so I don’t measure, or read my reports, or understand my costs…..”
Let me tell it like I see it This is just plain not true – these people are lying and I have proved it, time and again.
Ok, they probably don’t mean to lie, but very, very very few people are truly bad at maths; generally our education systems are sufficiently capable of instilling the basics in most of us. Therefore generally, the people who declare they are bad at maths have either:
had bad teachers, or
didn’t find it interesting enough to listen,
I know this to be true because every single client (and a few friends and acquaintances) that has ever said this has become a personal challenge for me, and I have never once failed to improve their use of maths, measures, and metrics and thereby improve their business success; I’m talking about hundreds and hundreds of people here (not just one or two) and whilst some may have taken a little longer – usually because they were busier protesting than listening – in the end they got it AND LOVE IT.
Right, so now hopefully you have stopped telling yourself you are bad at maths, that is the very first, and very largest hurdle! (if not go back and re-read the last three paragraphs again!)
Back to metrics made really easy (remember metrics are the results of taking standardised measurements)- there are basically two categories of metrics used for business:
- Financial Metrics – used to report ON the business (to the board, investors, media, etc.). These focus on using the past performance as the basis for predicting future performance of the business as a whole. A Good Financial Metric is one that makes accurate predictions about how Company A. will continue to perform when compared to other companies.
- Management Metrics – used to report In the business; to optimize the business products, people, pricing, markets etc. These focus on collecting and analysing activity data of various aspects and parts of the business. A good Management Metric is one that answers a question, or gives a result, that will drive profitable decisions for changing activities and behaviors.
Metrics that don’t support any kind of decision are likely to be “vanity metrics” – there to make you feel good but with not much business value; or worse still just plain distracting.
Here are three rules of thumb to tell good metrics easily:
- Rates or ratios is better than an absolute or cumulative value. “number sold” is not nearly as useful as “% of total sales” – for example “we sold 5 blue ones” doesn’t give as much information as “60% of Sales were blue”
- Comparatives to other time periods, sites, or segments is better than a stand-alone number. “% of total sales” is not nearly as useful as ”% of total sales per week” OR “% of total sales per shop per week”. The key here is where you track a metric over different groups (in this example shops) over periods of time. Keep it consistent, if you set your metric as weekly track and save the data weekly so you can report the metric properly
* TIP – don’t set a metric as weekly but then enter all your sale as 1 July for the entire month of July – the data won’t support the calculation
- Simplicity – simple and easy to understand; otherwise, people won’t remember it and discuss it. Check if the metric name is less than 5 words and the calculation is easily described in under 10 words.
Review and update all your metrics – start with just a few each week until your entire reporting process is clean and clear.
About the Author
Eve Blackall the small business answer to The Supernanny.
At Smart Accounting you work one-on-one with Eve who has already assisted hundreds of business owners increase cash-flow, grow profits, and ensuring businesses fetch the highest price when it comes time to sell.