It is not uncommon for small businesses to have zero understanding of how their business is performing in any given moment. Or, how it is performing against strategic objectives, if they even exist within the business. There is so much to contend with when running a small business, that it is sometime difficult to get a grasp on everything at once. However, something that really should be prioritised is the measurement of business performance. This is what will help you achieve business growth in the long term.
Many small business owners take a very ad hoc approach to measuring business performance. Many wait until the end of the year to check financial measurement, whilst others take a quarterly approach. The really astute will check financial performance on a monthly basis and feel that this gives them an accurate understanding of how the business is performing. However, business performance is much more than just financial performance. Plus, checking the figures doesn’t necessarily give you an understanding of how the business is performing if you are not measuring it against a goal or strategic objective. If you are serious about business success and growth, it is key that you approach it in a systemised and structured way by having clear KPI’s which you are tracking. However, the KPI’s make up one part of the 4 part process:
1. The Vision
I will never stop shouting about the importance of being clear on your vision, to achieve business success. This is also true when setting Key performance indicators. When trying to assess business performance, it is essential that you have clarity on the vision which you are trying to fulfil. This will inform the key areas of performance that your business should be focusing on.
Your vision may be to “be the number one for customer service in our industry”. Then one of the areas that you will need to be measuring performance is customer service. Measuring finance alone will not help you improve performance in relation to customer service. Where are you trying to take the business in the long term? What is the mission you are attempting to achieve? Without an understanding of these things, you are really just going with the motions and hoping for a good outcome. What does success look like?
2. The Values
Your company values are another area which should inform measurement. If one of your core values is “innovation”, then you should have some way of measuring how innovative the business is being over a given period of time. Many small businesses claim they are clear on their values, yet they do not have any set methodology for fulfilling or living these values within the business.
I had a client once tell me that part of their vision was to be a community focused business and one of their core values was “community engagement”. When I asked what they were doing on a quarterly basis within the community, their answer was “nothing”. Their vision and value relating to community, was therefore null and void. However, if they had then determined how they would conduct community engagement and then had set some form of measurement around this, (number of community events attended per quarter, number of work experience candidates per month), it is likely that they would have made some progress in this area. Making it a priority improves the likelihood of it being prioritised.
Are you tracking your business performance in relation to your vision and values? Do you have clarity on what your company vision and values are? If you don’t, now is a great time to sit down and map these out.
3.The Strategic Objectives
The most important element of business performance measurement, are the strategic objectives. If you do not have strategic objectives, then what are you really measuring? Your strategic objectives are the goals that you set for your business over a fixed time period, typically 3 – 5 years. They should align with your vision and values, plus your overall business strategy.
There are 4 key areas which your strategic objectives typically incorporate:
Having 3 – 4 strategic objectives for each area is ideal, with no more than 15 in total. Your strategic objectives should be split into four:
- The theme (Customer retention)
- The action (to increase)
- The impact (customer retention by 70%)
- How you will achieve it (by significantly improving our onboarding and offboarding processes and providing consistent exceptional customer service)
Do you have strategic objectives for your business? If not, use this method to create some.
4. Measuring Performance
Once you have clarity on your vision, values and strategic objectives, you then need to determine the tactics for achieving them and what will be measured.
If we use the following strategic example:
Customer retention – To increase customer retention by 70% by significantly improving our onboarding and offboarding processes and providing consistent exceptional customer service.
A specific tactic which could be used to improve the process could be as simple as “requesting customer contract extension in offboarding meeting”. If this is something which hasn’t previously been done, or is often forgotten, implementation could impact the number of customers that are retained.
The measurement of the tactic and the overall performance towards the strategic objective, would be the number of clients retained (or lost) in a given period. This would be your target number. You would determine what that target needs to be in order to achieve your 70% retention rate. You would also determine how frequently the data would be collected and reported depending on the number of clients processed per month. You may want to check the number retained (or lost) per week, per fortnight or per day. If the number retained is too low, or the number lost is too high, then you are able to identify a method or required improvement to address this.
The full working example:
Theme: Customer retention
Objective: To increase customer retention by 70% by significantly improving our onboarding and offboarding processes and providing consistent exceptional customer service.
Tactic: requesting customer contract extension in offboarding meeting”.
Measurement (KPI): Number of customers retained
Frequency: Per fortnight
Target: 7 (out of 10)
In the case of the number falling below 7, you would be able to quickly identify the problem. You could then work on getting that number back up. In order to achieve your strategic objective of a 70% retention rate, you may then need to increase your target from 7 – 9 in order to make up the short fall of the period where you didn’t hit the target. Where many small businesses go wrong, is that they wait until the end of the financial year to track these metrics. At this point it is too late to fix it.
How committed are you to achieving business success if you don’t have strategic objectives? If you do not have KPI’s which you are tracking on a regular basis, you are not giving your business the best chance of achieving success.
Do you need some assistance with getting clarity on your vision, values, strategic objectives and KPI’s? Why not book a Vision:20 session with She’s the Boss? Find out More