By: Nhu T. Nguyen
Every owner wants to lead his or her business to success but not everyone is certain about how to measure the success of their performances. As everything continuously changes, it is crucial that today’s businesses constantly keep track of their activities to know what works effectively and what do not. Importantly, although financial performance is the main concern of small businesses, it is just one of the factors that constitute the success.
Here are some ideas to help your business measure the performances.
1. Define your business KPIs (Key Performance Indicators)
A KPI is a measurable value that provides the performance information to help businesses determine whether they are effective in meeting their goals or not. KPIs can act as navigation tools to show a business whether it is on the right track leading to defined goals or off its prosperous path. Moreover, when managers need to make decisions, they need information which can be provided by looking at the KPIs. In this case, KPIs perform as decision-making tools that help managers answer business questions and make critical decisions.
As a business, you should be careful in choosing the KPIs to assure that they align with the needs of the organization. If you choose too many KPIs, you might receive chaotic information that makes you feel confused to evaluate the performances. Keep in mind that “less is more”, ideally you should choose 4 to 5 KPIs and avoid selecting over 10 KPIs for your business.
You can flexibly change your KPIs as there are changes within the business, such as new goals or bigger operation size. For example, as a start-up, you will pay attention to brand awareness, customer feedback, and new customer rate while a business which is in the expansion stage of growth might focus on the cost of acquisition and customer lifetime value.
2. Review internal measures
As the labor market is stabilized, employee’s job satisfaction is increasing that up to 88% of U.S employees reported being satisfied with their jobs in 2016. Since job seekers can have more opportunities to choose the job that best fit their competencies and interests, though retaining employees is becoming a harder task for businesses, it is still worth being invested in. Happy employees contribute greater productivity, lower turnover, higher profitability, and loyalty.
Speed of execution
Speed is your competitive edge in today’s work world. Review your company’s execution process- how things are organized to achieve the defined goals and objectives and evaluate the effectiveness of the process. If you choose the speed of execution as a KPI, set a clear goal and focus more on the team building and employee motivation perspectives.
Many people are uncertain about how to measure their innovation process. Managers can measure the results of the innovations after the team scales and commercialize an idea, but how about before? It is also important to focus on whether the team is doing the right things for innovation or not. In this case, three KPIs for innovation can be group learning, number of ideas, and market evaluation.
3. Review external measures
As a business, you work hard to satisfy your customers. To collect data about your customers, you can use many methods such as Customer Satisfaction Surveys, Customer Satisfaction Score (CSAT), Net Promoter Score (NPS) or Customer Effort Score (CES). Possible KPIs to measure customer satisfaction are overall satisfaction rate, customer retention, and competitor comparison.
The growth rate of the market
An unattainable goal will demoralize the team if they fail
If a business is attempting to expand its market shares, the growth rate of the market becomes the main concern. It is challenging to set a realistic and measurable growth goal because an unattainable goal will demoralize the team if they fail and a goal without challenges will create the opportunities for the competitors to gain your share. You might need to dig into your historical data, study the market, or consult the expert to set your S.M.A.R.T goals.
The basic formula to calculate your new customer rate within a given period is taking the number of new customers divide by the number of total customers then multiply by 100. Possible KPIs to track your new customer metric is the number of new orders and customer equity (total value created by new customer relationships).
4. Define the frequency of updating the indicator values
Depending on the purpose – for which measurement the measuring frequency is needed – varies. You can decide if you want to update the indicator values hourly, daily, weekly, monthly, quarterly, twice a year, annually or even virtual continuously 24/7.
Measuring the company performances support the decision making of managers. It helps the businesses keep track of what they are doing to achieve the given goals and objectives. What to measure and how to measure should be planned carefully before the team performs any activities, as well as the measuring frequency. If you are still unsure why you should measure your performances, Peter Drucker has an advice: “What you cannot measure, you cannot manage.”