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Track Your Metrics
to Achieve Your Business Goals
Ask yourself a simple question:
At the end of a week, how do you know whether it has been
a good week or a bad week for your business?
Your answer is probably a KPI (Key Performance Indicator). KPIs are signposts showing what progress (or lack of progress) was made over a specific period of time toward a specific goal. KPIs are a subset of the Metrics that every business needs to survive and thrive.
Formally speaking, a business Metric is a quantifiable measure used to track, monitor and assess the success or failure of various business processes.
There are 2 types of Metrics:
- Those looking forward and indicating progress toward the goal are called leading measures.
- Those looking backward and indicating level of accomplishment of the goal are called lagging measures.
Both leading and lagging measurements are critical to assessing success. Generally speaking there are 2 or more leading metrics for every 1 lagging metric. Check out this example...
What are the Basic Metrics?
Most of the very basic Metrics that every manager should be using to succeed in running their company/department/ unit can be found on the P&L (Profit and Loss statement). Each business is somewhat different, but in general, these are the top 5 lagging measurements to keep a close eye on:
- Revenue (aka Gross Income or Sales)
- All other expenses
- Cost of Goods Sold
- Net profit
Usually these numbers would be reported as:
- YTD (Year to Date)
- TY (this year) vs. LY (last year)
See a sample of the Revenue portion of a P&L below:
A P&L should be:
- run at least once each month with information collected for the month just closed.
- run as close to the beginning of the month as possible, ideally between 3-5 days after the start of the month.
- reviewed by the owner, as well as the appropriate members of the management team, both individually and as a group.
Time should be set aside to discuss the results, and determine the actions necessary to solve any problems and/or maximize the positives.
By its very nature, a P&L is a lagging measure. Normally, it is only reviewed once a month. Its contents should NEVER be a surprise. The P&L should only be confirming what other measures have already told you.
A KPI (or Key Performance Indicator) is a subset of all your metrics. Whether company-wide, by department, by project or even by individual, Key Performance Indicators (KPIs) are the specific items chosen to measure progress toward specific very important goals. They are your most important metrics. They are the ones you can really use to make your business more successful.
How to Build KPIs
Here’s how to create great KPIs that will help you achieve your goals:
1. Simply and clearly state the goal (or result you are seeking). Be sure to include an objective measure (usually some kind of number) as well as the date by which you hope to achieve the goal.
2. Make a plan. What specific actions do you have to take in order to reach your goal? The more detailed you are in this plan, including who will do what and by when, the better chance you will have for success.
3. Based on the steps in your plan, decide what the specific objective(s) is and how you will measure your progress. These are your KPIs.
4. Create a weekly reporting tool. This can be a simple Excel sheet, a fancy Dashboard or even the back of a napkin – just some vehicle that provides a snapshot of the KPIs current status and the KPIs over the window of time you have set to achieve your goal.
5. Review KPIs and take action on results:
- Decide on how often you will check on progress
- Decide who will be on the team reviewing the results
- Decide what action will be taken to continue progress toward goals
Bells should be going off here! There is nothing more important than taking action based on the information received through your measurements. It is a continuous process of setting goals, making plans, measuring progress, reviewing results and making improvements that lead to true excellence (and lots more profit).
Setting up Metrics is so much easier than most businesspeople realize. Click here for the MYObis form that will walk you through the process. Or contact us. We’ll help you set up your first set of Metrics for free. We consider them thatimportant to your success!
You can reach your business goals by Tracking Your Metrics!
Learn the basics, define your goal, and make a plan.