Formerly Corporate™ Outlooks: Five key performance indicators for CEO’s are translated for the smaller business.
1. Average Time to Close
Number of days between a sales-accepted lead to a signed contract.
Data sources: Sales and Finance
Small Business Outlook–All sales people, which all small business owners are, should be looking at #1, the time to close, as well as closing ratio. Those indicators affect #3, your cash balance. Think cash flow there, which really means can you pay your bills on time?
Take a look at your sales process to improve your time to close. Sales is a learned skill, not an innate talent. Get professional training sooner rather than later. If you’re in business, you can’t afford not to learn to sell.
2. Cost per Acquisition
Total Sales and Marketing costs divided by number of new customers.
Data source: Finance
Small Business Outlook: This is often overlooked– I don’t know if it’s denial or what. It seems some people would just rather keep their head in the sand.
Get a realistic handle on your sales and marketing costs—advertising and website costs may be easy to track, but what about your networking expenses (all those cups of coffee!), your chamber memberships, the miles you travel to meet prospects, the courses you take, the live events you attend, the fees you pay for social media…
Put your head back on your shoulders. List all activities you could possibly ascribe to marketing and sales. Ask your bookkeeper if you are tracking and categorizing them correctly, so you can calculate your Cost per Acquisition.
3. Cash Balance
Operational, investment and financing cash flow.
Data source: Finance
Small Business Outlook: Again, many small business owners focus too short term: on making payroll and paying current bills. But cash figures into how (and how much) to save and invest for opportunities, emergencies and retirement. Not to mention how to arrange and prudently use financing to enable growth: Are you able to rent new office space, buy new equipment (is it time for a new computer or tablet?), or bring on extra help, if business demands it?
You’ll be wise to build a cash reservoir, with some gates to a mill race, so you can control how fast and to what purpose your hard-earned cash is flowing.
4. Headcount by Department / Region
Total number of employees broken down by department or region.
Data source: Human Resources
You may laugh at this one if you are a small or solo-entrepreneur.
Small Business Outlook: What FUNCTIONS do I need in my business? Since you really can’t wear all the hats forever, think about headcount in terms of who could pick up those functional responsibilities. Your number may look like job functions per person, rather than # people per job function!
Another way to solve this problem is to build a Starburst Business™ for yourself, by finding, cultivating and sending business to other small business owners who do great with hats that don’t become you.
A good KPI has an ideal target value. Maybe this one we’ll call Hats per Owner. The ideal ratio would be 1–the owner wears the owner’s hat.
5. Marketing Channel Conversion
Marketing spend by channel and which channels are converting.
Data sources: Marketing and Finance
Small Business Outlook: This one is hard, because there are so many possible channels. For the small business owner, there are a few that have been shown to work best.
- Advertising works ok for some retail businesses, and not so much for service businesses.
- PR has the advantage of lower cost, although professionals, who need to be paid, do the best PR.
- Word-of-mouth, or referral-based marketing, usually has the lowest cash outlay,
- Social media is just a distribution method for the other three, and it’s not free either. It’s the biggest time suck, if you go in without a strategy.
Also, as John Wanamaker famously said, “I know only half of my advertising works—I just don’t know which half.” All the channels you use as a small business owner feed into your reputation, your brand impact, and your results. It’s hard to be very analytical on this matter.
Still, here’s one way to approach it that you CAN measure. Set a budget for your total marketing spend. Be more generous than you believe you can afford, and then determine to get the biggest bang for your buck. Here’s where you may see that, for instance, two newspaper ads for $1000 a month bring almost no response, whereas if you invested that money with a business development coach, you could be using less expensive channels more effectively.
I’m just sayin’….
To sum up, then, the big boys have worked out some of the key performance indicators that work in their world. Our job, in small business, is not to re-invent the wheel necessarily, but to adapt some big business ideas to our world. And beware—all big business ideas don’t work for small business.
Lorette Pruden, PhD, is the author of Formerly Corporate : Mindset Shifts for Success in your own Business. You can read an excerpt about Starburst businesses here.
Domo.com, a business intelligence site, has good information on business analysis and metrics. Here’s the blog post that sparked this response.