When you shovel snow from your driveway, you have an easy metric to measure your progress. Where you’ve shoveled is clean, where you haven’t shoveled is not. Most people will not spend time shoveling the clean spots, as it will not get the job done any better or faster.
Metrics in your business can guide you the same way. In addition to measuring financial goals, they can be used to measure the success of various efforts you make to grow your business. Advertising campaigns, direct mail, networking events, Adwords, SEO, all can have a positive effect on your top line sales. If you control your associated expenses toward those efforts, you can measure the dollars spent vs the return for each of those dollars. In essence, it will help you to shovel only the parts of the driveway with snow on it.
What Metrics Are Important?
I’m not an accountant or bookkeeper; and you should have one who can help you with the typical financial metrics in P&L statements; so I’m not going to concentrate on that. What I would like to address is measuring progress you’re making in your various marketing efforts.
First, though, to measure progress toward a goal (say, a clean driveway), you need to define that goal. If you’re just beginning your business, you may not really have any goals other than, “I want to make a lot of money.” That one’s obvious, but you’ll develop others. Most people have some idea of what their business needs to be doing to succeed. Metrics are a way to identify goals.
Say you’ve opened a storefront and want to do break/fix and computer training for both businesses and residential clients. That’s pretty broad. But, you’re still testing the market, so let’s go with it. The first thing you can do is keep track of which clients are break/fix, which are training, which are businesses and which are residential.
So, for each client, you’ll record which type of service (break/fix or training) and which type of client (business or residential).
Then get in the habit of generating a report showing how much revenue comes from each of those categories: break/fix—business, break/fix—residential, training—businesses, training—residential. I’ll leave it up to you how you keep track, but a good bookkeeper can easily set up systems to do so. An Excel spreadsheet is the most straightforward way, but as your business grows you’ll want to tie it in to Quickbooks or whatever your accounting package is.
Interpreting the Results
One month of data is next to worthless; it’s important to look for trends. After a few months, you may see, for instance, that break/fix—residential is your biggest category, followed by training—residential, then break/fix—business, and nothing for training—business. It’s important
After a while you’ll know what your bread and butter is, where most customers come from. If you’re happy with this segment of customers, then do more of what you’re doing. If not, investigate ways to change your approach so that you bring in more of the other types.
Assume for a moment that you’ve been spending a lot on Adwords and direct mail to businesses promoting your services, and very little on residential marketing. Right off you’ll know that whatever you’re doing toward businesses isn’t working, assuming you’ve given it enough time. Whatever success you’re having with residential services is due to something you’re not paying attention to. Perhaps your clients are giving your name out to their friends. Perhaps your storefront attracts them, or your website.
Perhaps it’s time to re-evaluate your efforts? Are you shoveling the part of the driveway that’s already clear? Or, it may be that the market need out there is for residential services and you need to re-define your goals.
So far this is straightforward, and you didn’t need anything fancy to measure this. The basic concept, though, is to measure things you think might be important and see if you detect patterns.
What You Might Measure
Here are some things I’ve found valuable to measure monthly for my business, along with my reasoning.
Metric: New Clients Served, Repeat Clients Served, Total Clients Served
- Total clients served is important, as is growth in the total number of clients. The more clients you have, the less likely the loss of any one will hurt you. As well, the more clients you have the more likely others will hear of you through them.
- Repeat clients served is like a second date—they like you. Do more of what you did the first time. If repeat client percentage is a low number, find out why.
- New clients served measures how effective your marketing efforts are.
Why: Hours per client is a measure of efficiency.
Metric: Referral Source
- Referral Source shows how people are finding out about you. If you are spending a lot on newspaper ads with no resulting business from the ads, stop it. No more snow there. Here are the referral sources I track for my business (all measured as a percent of total sales for 2016):
- BNI 17%
- Rotary Club 15%
- CCMD 12%
- Happy Client 10%
- Retirement Ctr 9%
- Friend 8%
- Chamber of Commerce 7%
- Website 6%
- Senior Center 4%
- Tech Referrals 4%
- Apple Store 3%
- Other 5%
Metric: Market Segment
Why: Market Segment, for my purposes, is just whether it is a business client or a residential client, and whether it is break/fix or training, as discussed above.
I also measure a few other things I won’t cover here, along with your Financial reports, but once you start this you’ll gain a lot of insight into your business. Find a good bookkeeper who can keep track of all this for you. I have mine generate a one-page metrics sheet for me each month, which we spend some time discussing.
Using various metrics to give a snapshot of your growing business can help you make that growth, and profitability, happen.