Numbers, metrics, financials—call them what you will, but, as a business owner, chances are your view of them falls into one of two distinctive camps: either you can’t live without them or you view them as a necessary evil. A bit like Marmite, it doesn’t seem too many people fall in between these two viewpoints.
These days, like most data, there is no shortage of supply. You can get metrics on every aspect of your business sitting at your preferred screen 24/7. But in our experience, more volume can give less clarity unless you 1) know what you’re looking for, and 2) are able to organise the data into an understandable form. You need a plan and you need a system, whichever camp you fall into.
If you’re one of those people who love their numbers, the danger can be one of paralysis by analysis; i.e., there’s a tendency to measure everything that can be measured and then trying to interpret customer buying patterns or business performance from a whole raft of individual (but sometimes contradictory) viewpoints. The danger here is that you might confuse yourself with both the volume and range of data you’re trying to understand, and, more importantly, you might substitute data interpretation for one-to-one human interaction. As we’ve mentioned in previous blog posts, business in the end boils down to relationships, so a balance needs to be achieved between management by data and management by interaction with customers and staff. The latter sometimes tells you stuff about your business that you would never get from data, however much you generate.
- Do you know what your profit margins are for each of your product ranges?
- Do you know who your best customers are and what their customer’s lifetime value is?
- Do you really understand your P&L and balance sheet or the conversation you have with your accountant on an annual basis?
Numeracy in business is not an option but a necessity if you’re going to maximise your two main resources: time and money.
Interestingly, you will be pleased to know there is a common solution that works for both camps! Namely a set of key performance indicators, often referred to as KPIs in business speak. This is a set of business-specific metrics that monitor and measure the underlying drivers dictating how a particular business performs. Each business has different key drivers and therefore should be measuring different things. The skill comes in working out which are the relevant ones for your business.
There is a well-used business adage that says, “You can’t improve what you can’t measure.” So, if this is true (and we think it is!), start by listing the areas of business you want to improve and then find a metric for each of those areas. Business metrics are not optional; the key is to structure them in a way that empowers those working in the business and informs those working on the business.
And you never know, you might even enjoy the process!