The Power of Metrics

If you know the key metrics of your operation, adjusting the structural size of your business – whether that may be up or down – becomes much easier to do. However, in getting caught up with the day-to-day issues that arise with a business, many small business owners rarely have time to think about their overall performance and what they could be doing better. Taking the time to examine metrics can mean the difference between new customers for you or those for your competition. You pick!

Breaking Down the Metrics

In first getting acquainted with the metrics you need to measure, here are some areas that you, as a small business owner, need to consider:

• Leads generated: Every business owner must look at how much interest they are generating in terms of potential customers who may buy a product or who are considering a service offered. It is important to not only know how many leads are being generated, but it is also crucial to know where those leads are coming from to better understand how to adjust a marketing or sales strategy currently in place. If traditional marketing is not working and it is too expensive, then perhaps it is time to look into social media marketing channels.
• Leads converted: Of the leads generated, a small business owner must then know how many are now being closed as sales and primarily what channel or conversion strategy that is in place is getting it done for the company. If the core message or channel being used is not working, then it is time to try something different. Without having those numbers to look at, a business owner may just continue doing the same thing but wonder why performance is not improving or even getting worse.
• Average dollar per transaction: A business owner must continually reassess their price point and determine how that price is covering overhead costs whilst offering a margin that delivers a good level of profitability to keep the business moving. Looking at how much each customer spends also tells a business owner a lot about their customer base and demographic, which can help devise a way to incrementally increase those dollar amounts per transaction.
• Average transactions per customer: A business owner must also examine how many times their customers come back for purchases so that they can adjust their strategies to be more appealing or further cement that customer’s loyalty to their products and services. This may involve figuring out how to enhance the value proposition or whether it is time to devise a new product or expand the service offering.

Market Cycles Influence Metrics

Decisions about what metrics to change within a business are often motivated by market cycles. For instance, a downturn in the market like recently experienced often leads to companies having to downsize their business by as much as 40%, depending on certain factors like cash flow, revenue reduction, and margin shrinkage.

However, a small business owner who is prepared for such market cycles by knowing the aforementioned metrics can readjust without too much damage or disruption to the organization. There are cases where a business owner who has spent time getting to know the necessary metrics was able to restructure his organization, develop a new budget, and adjust his employee size and payroll. This provided him with a credible plan for the future that would sustain the business during the downturn and have it in good shape for any future economic rebound.

The lesson learned here was that a small business owner must track their metrics over time – often many months and on an ongoing basis – to see where performance standards could be viewed as good, fair, or poor. This provides the necessary time in which to readjust those areas to improve business metrics so that a good performance can result no matter what type of market cycle the business is experiencing.

Getting Assistance

Many small business owners like you may be struggling with metrics. Maybe you are unsure how to apply the recommended metrics or what the numbers mean when you calculate the results. You also may be challenged to connect the dots in terms of what strategies will help address performance gaps so as to move from a poor to great rating. Groups like The Alternative Board are here to help. 

Feel free to submit your questions below or send in your thoughts on the power of metrics to share with our other readers.