Once upon a time I used to be surprised when I found that many a business owner does not know the key numbers regarding their business. Yet I have come to accept that this is part of the typical business landscape.
That is, that many a business owner, due to the frantic pace of business, does not know the key metrics of their business. And why some are doing less well than they can or should be despite the economic environment.
Sometimes they do not know because they are just too loose, ignorant or lazy to take the time to find out and so are flying their business somewhat by the seat of their pants;
Or sometimes they are measuring so many things that they are lost and confused in a maze of umbers and analysis which is often not used correctly; and sometimes they do not know the KEY or principal numbers of their business because they are measuring the wrong things.
Whatever the reason for the lack of intimate knowledge there is really no excuse that will stand up under scrutiny since it is crucial to the success of any business to know “how to keep score” and “what the score actually is”.
To illustrate, I am reminded of a certain business (no names to protect the innocent?) that was involved in a B2C service industry. They were doing okay but nothing like what they could be doing and they weren’t sure where things were going wrong.
After some analysis we identified a range of issues. One that I want to discuss for the purposes of this article is the metrics they were keeping around their sales process. It was very revealing.
In essence they were only keeping statistics of the number of quotes they did that converted into sales.
However, clearly this is not the total picture of the sales cycle for this or indeed for any business.
What other aspects should they have kept statistics on?
Well, for a start, they needed to know:
• How many incoming enquiries (phone or walk-ins) were occurring each day/week.
• How many of these were “price shopping” (how the business was handling the “price shopper” is a whole other discussion – and, by the way, they were NOT doing it well).
• How many enquiries converted to appointments to quote on site/present.
• How many quotes converted to sales (business written).
As the company began to keep details of the number of incoming enquiries it became obvious that they had an issue that until this point had gone undetected.
Paul, what issue was that you ask?
Well, traditionally, they had a 85 per cent or better conversion rate of quotes/presentation to sales (business written). However what they did not know was that they had a shocking conversion ratio of enquiries to appointment to go out on site and quote/present/close the business. In fact it hovered around 20 per cent.
Of course, for a number of years the business owner did not know this because he was not keeping records of the number of incoming enquiries.
He was under the false assumption that the business was doing well because of the appointment to sales (business written) ratio being 85 per cent or better. The sad reality was that, yes, they were doing well with one aspect of the sales cycle, but they were letting themselves down badly through ignorance of the front end of the sales cycle (number of incoming enquiries).
Once the business owner grasped this it was clear that we needed to develop a script (yes, all successful businesses use scripts) for their receptionist so that she could properly qualify an enquiry and improve the conversion ratio of enquirer to quote (or better still firm booking to do the job).
As a result of these important tweaks in this franchised business they went on to boost their revenue by some 20 per cent of their year-to-date sales within the four weeks subsequent to implementing the new and simple systems. Read that again just to make sure you got it.
Yep, a 20 per cent increase in YTD sales within a 4-week period.
This story illustrates the importance of knowing the key numbers in your business, otherwise you are in danger of making decisions based on false or at best inaccurate information. (Now I know we don’t have perfect information but you certainly don’t want to sabotage your efforts through sloppy business practices do you?)
So your homework/take away from this article should be to ask yourself:
1. Am I sure that we are measuring the right things to get the right result?
2. Are we covering all CRITICAL elements of the business process in question?
3. Are there too many or too few dials (metrics) that I am monitoring and can I simplify the business “dashboard”?
4. Are my staff aware of what the key metrics are and why I am measuring them? (If not why not? Perhaps you need to run a workshop to educate them further on these issues.) Need help?
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So, as you start the new financial year, I encourage you to take a good long and hard look at your business and the metrics you are keeping. Do they need refinement or tweaking to adjust to new market conditions?
I can’t stress the importance enough of thinking deeply and carefully about these questions and your answers and then having the presence of mind to act quickly to ensure that you and your whole team are suitably educated and aware of how and what it means to keep score in your business.
Hint: Done correctly this will help further align your individual staff goals with the corporate goals and objectives to maximise the synergy and effectiveness of achievement.
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