Business is a careful balance of “head” and “heart”. “Head” can be defined as the processes, work-flow, structures, governance, financials, etc. while “heart” can be defined as your culture, passion, attitudes, trust, teamwork, and communication. Finding the optimal balance based upon your size, market dynamics, values, and growth trajectory can prove challenging at any phase of organizational growth.
We’ve been engaged by the entrepreneur with more heart than anyone but can’t break past $2M in annual revenue to the “heady” $55M company that has a metric for everything but has a toxic culture and 60% annual turnover. Where is the equilibrium and does size, market, growth plan, and external competition play a role in determining?
In assessing any business, it’s important to efficiently analyze the current business model and culture by developing a set of objective metrics from which to judge incremental improvements. Much like a car has a dashboard, visually displaying a handful of critical indicators to let the operator know the vehicle can operate as intended, your company should have a series of metrics to objectively gauge performance.
You don’t have to be an expert automotive mechanic to operate today’s modern vehicles as these dashboards display only the essential information necessary to safely and efficiently get to your destination. When there is a problem and a system is outside of specification ranges, the handful of gauges create warnings, alerting the driver of a current or escalating problem. These dashboard elements are universal, making it easy for anyone to interface with a wide range of vehicles regardless of their mechanical knowledge or driving style.
There are various metrics in business to gauge the performance of marketing, sales, operations, finance, production, fulfillment, quality assurance, and even culture. The list of potential metrics is vast and can yield more confusion than good if not carefully selected, consistently measured, accurately reported, and carefully evaluated against your size, growth trajectory, and cultural objectives.
Sampling of metric examples:
360 degree feedback
Marketing and Sales
ROMI – return on marketing investment
Cost per lead
Sales funnel $/ total budget for a period of time
Gross profit per sales rep
Customer Service / Experience
DSO - days sales outstanding
Gross profit margin (revenue less direct cost of goods sold)
Current ratio or Debt to equity ratio
Return on assets / return on equity
For metrics to be effective you’ll need to ensure that:
They are simple enough to understand and compute
You establish an accurate way to obtain the data so that corresponding reporting pulls consistently accurate data
You establish a rolling period of time to evaluate a metric. Using a rolling 13-week average may be more insightful than looking at a metric for a day or week. Chose a period of time that minimizes “outliers” due to seasonality, peak times, etc.
You create ratios instead of one-dimensional measures. Find something to benchmark the metric to that will give you a measure relative to something else.
There is a brilliance in creating a handful of impactful metrics to run your business or specific department / functional area. Having a consistent and objective way to demonstrate incremental improvement, identify trends, or to more quickly identify constraints can have far reaching impacts on performance and culture. Having well thought out metrics can have positive impacts on accountability, communication, and teamwork while providing a more objective way to align compensation design to performance.
You can reach us at firstname.lastname@example.org for more information on how to implement smart metrics to enhance performance, accountability, and overall organizational value.