How should business measure performance?
Are you a business owner or manager looking for ways to measure the performance of your business? If so, then this video has all the answers you need! Watching it will teach you how to identify your business goals, choose the right metrics and collect and analyze data in order to accurately measure your business performance.
At its core, measuring performance is about making sure your business reaches its Northern Star, achieving your desired outcomes. To do this, you need to have a clear understanding of what your goals are and what success looks like. This means identifying both financial and non-financial goals such as increasing revenue, improving customer satisfaction, or gaining market share.
Once you have identified your goals, the next step is to select specific metrics that help measure progress towards them. These should be SMART goals, (Specific, Measurable, Achievable, Relevant and Time-bound). Example metrics include customer retention rate, churn rate or employee engagement scores.
Finally, collecting data on your chosen metrics, furthermore analyzing that data is a big deal when measuring performance.
- This can involve tracking financial data such as sales figures or costs incurred over time
- Conducting surveys in order to assess customer satisfaction levels
- Analysing internal process data related to efficiency gains or productivity improvements.
So if you want tips on how businesses should measure performance effectively, don't miss out on this podcast. Listen to find out more.
Conclusion and good to know
The I Hate Numbers podcast isn’t just about financial performance though. Other topics are covered, for example cash flow management, budgeting, forecasting, tax, accounts, and more! Every episode provides actionable advice from me, Business Finance coach, accountant and educator who explains that stuff in an easy and no nonsense way.
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Transcript
Does the idea of success achieving something in your business appeal to you? It appeals to me as a business owner. I hope it appeals to you as well. Whatever you've defined your success as, whatever you've articulated and what you've visualized it as. One way to achieve that success is to be able to measure your progress as you make your journey towards that end destination.
::Measuring performance is really vital. If we're gonna identify mistakes that we're making along the path, and we will all make mistakes by the way, on our business journey path, we can help celebrate our wins, we can know what we need to do to fine tune our journey plan to get to that end destination point.
::You are listening to the I Hate Numbers podcast with Mahmood Reza, the I Hate Numbers Podcast mission is to help your business survive and thrive by you better understanding and connecting with your numbers. Number love and Care is what it's about. Tune in every week. Now here's your host, Mahmood.
::What's the first thing we should consider when we're deciding how we should measure our performance effectively? Well, the first thing is, is to decide what is it that's important to you? What is it that's important to your business? What's important to your customers to achieve that level of success that you've identified?
::Look at your objectives, look at your performance outcomes, look at what you're trying to achieve and think, what do I need to do in my business in order to achieve that? Is it an issue of quality of products, quality of delivery? Is it about the speed of which I do things? Is it making sure I've got a good, well organized, effective, harmonious, and incentivized motivated team?
::Is it necessary that I spend a lot of time and energy and money on R&D? Is it important that I control my margins? Is it important that cash flow generates sufficiently to keep the wheels turning? As a spoiler alert, folks, by the way in next week's episode, I'm going to identify 10 good robust KPIs that you can use in your business
::whatever the circumstances. Now, the what kPIs, we will address later on, but what we're focusing on today, is, how do we go about establishing a good system for measuring performance? So first of all, consider what's important. That's what we are measuring. If we can't measure it and we don't have that somewhere in our reporting system, in our data dashboard here, then we're not gonna be able to manage it and it will slip under the radar.
::The second thing to consider is making sure not only identifying what we need to measure, but the blend and the types of measures that we need. We need a mixture of the numeric, the quantitative measures commonly called KPIs, but we also need the qualitative. So measuring things such as gross margin, if they're declining, doesn't actually tell us what's causing that problem.
::So we might find it important to measure things such as the level of customer complaints, the level of returns, to have a blend of qualitative, descriptive non-financial indicators, as we might call them, as well as financial KPIs. Have numeric ones, ones that can come across by raw data and ones that can be descriptive.
::Now, KPIs, which is key performance indicators, can be observations, surveys, questionnaires, it can be numeric data. It's a whole blend that we need to have. The third thing we need to consider is having targets for our KPIs. Now, targets are our aspiration, what we're aiming for, and there's a few things we need to take on board when it comes to setting targets for our KPIs.
::Number one, make sure whatever targets you set yourself are SMART. And what do you mean by smart? Now? Smart targets are ones that are specific and measurable and by nature a KPI is specific and is measurable. It should also be acceptable, and I actually acceptable by you and all of your team. You've got to not only be able to accept them, but these are targets that are going to motivate us, motivate your team, and there has an element of feasibility about it, as well.
::The R in the SMART is realistic. Now, there's no point setting impossible targets, targets that nobody's gonna achieve, or setting targets for areas that we or our team cannot control. So make sure we're looking for things, for targets that people can influence, make sure they're not too soft time bound.
::If we know the deadlines we're setting ourselves when we're setting targets, it's gonna make them more meaningful for ourselves and our team. And just lastly, while we're talking about targets, targets should be what I call stretching and challenging, not impossible, and not too soft either. So we've talked about what it is that's important for us to measure, and it won't be the same for your business as somebody else's.
::We've talked about the types of measures that we should have. We've talked about setting smart targets. The next two considerations are how often we should be viewing these measures. Should we be seeing them once a day? Should we be seeing once a week, once a month? Well, that really depends on the type of measures you're looking at.
::So certain measures such as insights onto cash flow, insights into profitability should be monitored minimum on a weekly basis. If you're at a very volatile business area, then cash flows might be monitored or a daily basis, but typically once a week looking at the cash flow that it's being generated,
::looking at liquidity, it's gonna be relevant and it's gonna be useful. Looking at things like market share, perhaps the big picture stuff, the things that take time to establish here, maybe that's something that's worth reviewing on a quarterly basis, you decide. Minimum I would suggest be between weekly and monthly, but make sure those measures are communicated effectively to you and make sure you've got those to hand.
::The last thing to consider is a system of actually collating and obtaining the data upon which the KPIs are going to be calculated. Now, when setting up a measurement system, when setting up a performance system, there'll be measures that you may not necessarily have the data for. They could be aspirational KPIs, but certainly we shouldn't miss them out.
::But make sure you've got a good data system, so your account system ideally should be a digital one. Spreadsheets are fine, up to a point. But they have very limited value, certainly in terms of reporting and crunching KPIs. So have the right CRM systems, the right data systems. You need to be able to collate the data if you're gonna calculate the KPIs, and if you're gonna report on them as well.
::Now, as a common sense point of view, folks, remember, measuring is part of the equation. It's an important part. Managing them, reacting to them, taking action over them is going to be vital as well. I hope you found these five steps useful. I'd love to hear your feedback and comments. What else would you add?
::Have I missed anything else? What do you think of the five steps that I've identified? I'd love to hear that. Subscribe to hear future content. And for now folks, think about your KPIs, what's important in your business, what is it important for you to measure? We hope you enjoyed this episode and appreciate you taking the time to listen to the show.
::We hope you got some value. If you did, then we'd love it if you shared the episode. We look forward to you joining us next week for another I Hate Numbers episode.
