Think about how stressful it would be to fly a plane without having any information about where you took off from, where you’re headed, as well as your altitude, speed, and fuel level. Strange as this may sound, it’s the same for a business that operates without tracking critical business metrics. Metrics are simply data points that shed light on how a business is performing, and whether corrective steps are necessary to get things back on course.
Metrics fall into two main groups—Results Indicators (RIs) and Performance Indicators (PIs). The two are often confused, and while both can give you valuable insight into how your business is operating, they home in on different types of data.
According to David Parmenter in “Key Performance Indicators,” RIs can be financial or nonfinancial data. They are measured and reported at specific intervals such as daily, monthly, quarterly, or annually. RIs cannot be tied to a specific activity or team, but rather they are a snapshot of how the business has performed. They don’t lead us to specific decisions on how to achieve different results if things aren’t trending the way we’d like them to.
Examples of RIs, both financial and nonfinancial, include:
- gross and net income
- net income as a percentage of revenues
- number of customer complaints
- customer conversion ratio (the rate at which prospects convert to customers)
- average number of calls to close a sale
PIs, on the other hand, tell business owners which corrective steps are needed to correct unacceptable results. Like RIs, they are also measured and reported at specific intervals, however unlike RIs, they focus on a specific activity tied to a specific team or job role and only measure nonfinancial data. They allow for much earlier intervention, because the data can be tracked over short time frames—from 24/7 to weekly.
PIs may include:
- average wait time before connecting with a customer service representative
- shipments sent out greater than 24 hours from order being placed
- number of days between when an insurance claim is filed and when it is paid
- time between restaurant patron seating and waiter arriving
- planes held at gate for more than 5 minutes beyond departure time
- average load size as a percentage of truck space
Think of it this way—RIs are what we get as a RESULT of our actions. We can influence them, but there is no guarantee of the outcome. PIs are the actions that we do in order to achieve results. These are the things that that are within our control.
Once RIs have been identified, the next step is to identify 3-5 of those most critical to your business’ success—these are your Key Results Indicators (KRIs). In determining which RIs to choose for your KRIs, it’s helpful to approach the data this way: “If I were acquiring a competitor, which data would I need to analyze to determine if I would make an offer?” Then apply these same rigorous standards to your own business.
After KRIs are identified, set up a “corporate dashboard” where KRIs and the KPIs tied to them can be quickly and easily tracked by anyone responsible for making decisions aimed at achieving goals. Just as a car dashboard shows the driver critical information at-a-glance (speed, fuel level, RPMs, engine temperature, etc.), a corporate dashboard shows business leaders key information regarding the state of the company. A dashboard doesn’t have to be fancy—a simple spreadsheet will do.
For example, for a company driven by revenue growth might include the following data:
In this example, the business owner can see that there is a direct correlation between the activity driving sales (phone connections, qualification calls, discovery meetings as well as the number and dollar amount of sales quotes) and the level of sales each day. The data tells us that despite a slow start to the month, the company got back on track on a month-to-date basis after taking corrective action with phone calls, meetings, and quotes. Perhaps the sales manager held some sales training at the beginning of the month, or a new salesperson was hired. In any case, the dashboard gives the business leader insights as to how sales are performing on a daily basis, as well as the metrics that drive sales results.
Do you track KPIs and KRIs? If so, have you created a dashboard to track the data, or is it something you’ve been meaning to do, but never got around to? Do you keep track of this data “in your head?” Peter Drucker was right when he wrote: “What gets measured gets managed.” As a business coach, I can help you identify KRIs and KPIs, develop a dashboard to start tracking the data, and use the data to make key strategic decisions that result in improved business performance. Reach out to me at email@example.com or 917-599-8230.
Megan Malanga is a Certified FocalPoint Business and Executive Coach, and is based in Springfield, New Jersey. With a passion for small business, Megan serves as a trusted advisor who is energetic, objective, and curious. Additionally, she acts an accountability partner, holding business owners and executives accountable, thereby helping them reach their goals faster than they would on their own.
With an M.B.A. from Drexel University in Philadelphia, PA, and a bachelor’s degree in Finance from Virginia Tech, Megan is an avid athlete. She participates in endurance sports, including marathons, half-marathons, and triathlons.