Every business will have a series of signals that indicate when business conditions are changing. It could be the number of new leads in your pipeline, foot traffic, web traffic, work in progress, contracts awarded, speed of your distribution channel, onboarding, yields, or downtime. These business metrics often provide an early warning before the financial impact is felt.
Here are five business metrics you may like to start to track and improve.
1: Leads and new business
These are the number of prospects in your sales channel. They could be downloads or enquiries from your website, people entering your location, or the number of bids or contracts you’ve been short-listed for. Take note that lead time-lines can vary significantly. Customers on a retailer’s website might take a few minutes to decide to buy something. Building companies may have to wait for months (or years) before a lead generates revenue.
Lead metric examples:
- The number of partnerships or strategic alliances. For example, it’s common for companies in the construction industry to form consortiums when bidding.
- Qualified traffic from your website and the number of registrations for your e-newsletter, product whitepapers, demos, samples, reviews, video explanations or free quotes.
- The response rate to advertising (it’s still ok to use traditional media if it works) or digital advertising.
- How many new customer targets and markets you’re entering.
- New distribution channels you’re launching.
- The number of new products or services you’re introducing.
Decide which lead metric is relevant to your business, identify the best way to track it, and then set up the reporting cadence (weekly, monthly, semi-annually) that’s best.
2: Customer retention
Your customer retention metric (or customer burn rate) tells you if customers are returning to your business, or dropping off possibly without you noticing. Customer retention can be down to how well you manage your customer relationships, support for when things go wrong, and offer personal one-to-one help. You may want to develop a ‘net promoter score’, where at the end of each engagement, customers rate your service (for example, from one to ten). Consistent poor results could hint at future trouble.
3: Production and quality
For many businesses, the amount produced at the required quality is a key metric. For example, agricultural businesses rely on high yields, manufacturers prefer to have their equipment and machinery operating at full capacity, and professionals like to bill as many hours possible in a day. Other production metrics to measure include:
- Project or cost overruns, indicating poor pricing and costing, or unseen delays due to the supply chain, with no contingencies in place
- Delivery accuracy and completing projects on time – small shortfalls add up to lost time and productivity
- Increase in downtime (staff or machinery) from inaccurate scheduling or mismanagement
- Quality-specific indicators for construction include the number of project defects, the ratio of inspections passed to the total number of inquiries.
In a perfect world, a business would get everything right 100% of the time – but even the very best companies will make a mistake. So pick two or three critical functions you need to get right.
4: Safety and employee wellbeing
Physical, mental and employee welfare are important measures of risk and liability, though accidents causing injury are often industry specific. For instance, while physical injuries may be less of a concern in a professional services business, mental health and stress could be significant issues. Alternatively, physical safety in building, manufacturing or construction businesses is much more serious.
These metrics can include:
- Your safety or incident rating/record, and the number of accidents.
- The number of employees who leave (your turnover rate) or an increase in sick leave (which may hint at internal issues).
- Employee happiness and support, especially with any employees working from home who may feel isolated
5: Environmental and sustainability
Almost all industries are threatened by the effects of climate change, either directly or indirectly. The disruption to a smaller business compared to larger businesses may also be more severe. For example, a flood can ruin a single owner-operator retail business, whereas a nationwide retailer would probably survive.
Metrics to consider:
- Reputational risk. Customers may not want to see your fleet of trucks belching diesel fumes, and the media could highlight your failure to participate in avoiding climate change.
- The number of customers switching suppliers to those that embrace climate sustainability and can demonstrate their green credentials.
- Recruiting employees who want to work for a business that better fits their ideal business culture.
If you don’t care about climate change, your customers will vote with their wallets. Taking action to reduce the impact on our climate is crucial, but it also makes good financial sense.
Next steps
As a business, it makes sense to know what non-financial metrics indicate you’re doing well or not. Deciding what these are and then monitoring them regularly will allow you to quickly determine early what remedies need to be put in place.
- Decide which non-financial triggers you want to track and set regular performance measures.
- Measure your carbon footprint and then plan to reduce it over time.
- Seek help from sustainability experts or talk to other small business owners to discuss environmental action.
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This content is for general information purposes only. It is not to be relied upon as financial, tax, or investment advice or guarantees about the future, nor should it be considered a recommendation to buy or sell. You should consult your own professional advisor for specific financial, investment, and/or tax advice tailored to your needs to ensure that individual circumstances are considered properly and action is taken based on the latest available information.
