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Tuesday, January 07, 2014

2014 Profitability Checklist - METRICS: What gets measured, gets accomplished

Do you have a dashboard that you use to measure the most important elements of your business?   It is a well known fact that "what gets measured, gets accomplished".

If you don't have a dashboard, we recommend that you build one and make it a part of your business review process.  That review should happen at minimum monthly, but in businesses with more activity, it could be weekly or even daily with a subset of the metric elements listed below.

Every business is different, so you will want to customize your own list of key performance indicators (KPIs). 

Here are some of the things that we recommend for your dashboard.  Where possible you will want to have a goal or target number to aspire to, so that you can see how you are doing.
  • Number of transactions and average value per transaction Take your total revenue and divide by the number of total transactions.
  • Graph with total revenues by month for the last year, compared to previous year (unless you are a new company)This visual allows you to see and understand your seasonality.  Comparing year over year is a better metric in most businesses than comparing month over month growth.
  • Graph with total transactions by month for the last year, compared to previous year (unless you are a new company)This visual allows you to see and understand your seasonality.  Comparing year over year is a better metric in most businesses than comparing month over month growth.
  • Average revenues generated per employee
    Take your total revenues and divide it by the number of employees in the company.  If your company uses contractors for daily tasks (versus just special projects), include that headcount in your calculation.   This is known as revenue productivity and it should be compared to your goal.  You can also do this geographically or by product line.

    To develop your goal, we recommend that you go back historically to your most profitable time in the last decade and do the baseline for that period, looking at the headcount and the total revenue generated.  Use that as your target number moving forward for your revenue productivity goal. 
  • Number of new customers,  lost customers and the total number of customers
  • Customer service staff to customer ratio
    For those organizations with a customer service department, the ratio of service people to customers is also a key metric.   If this number goes up over time, you may need to evaluate the complexity of your product or the effectiveness of your staff.   It is also possible to have your product team work to impact this metric by reducing the complexity of your product or automating certain functions.
  • Cost of acquiring customers (or a transaction)
    This will vary depending on what kind of a business you operate.  Many companies report this on a per transaction basis versus a per customer basis.   For online companies, this would be your cost of advertising and keyword buying and any other marketing effort directly concentrated on attracting customers, divided by the number of sales. 
  • Conversion Rate (for online companies)
    In online travel, we refer to this as the look to book ratio.  In this metric, we measure the number of transactions versus the number of unique visitors.
  • Average Length of Stay (for companies with informational sites)For many companies, getting someone to stay on the site longer can actually impact the average transaction value, or the amount that they can charge advertisers to the site.  This information is generally available from your web analytics company. 
The bottom line is that once you have this information, you need to ensure that your leadership team knows the top couple of things that can be done to improve each metric.  Those things should be included in your business plan.

Tomorrow, we'll talk about rewards for your staff (and for your customers).

Stay tuned.


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