Which metrics should businesses use daily? Choosing the right metrics can often be challenging for small business owners. Many times the choice made is not to look at any metrics at all and still manage by gut feel, doing the things that got them to where they are today. As small businesses grow, the gut feeling of an owner may become less and less accurate as the business accrues more employees, more expenses, and higher costs than when the business first started. Every business needs a set of metrics to review on a recurring basis.
Identification of what to measure is the first obstacle. What to measure depends on a combination of the industry and the specific business. Metrics should primarily be focused on managing profitability. For construction and service technician-based work, this will include direct labor and materials, as those items will typically make up a majority of the cost of goods sold. In a hospitality business like a bed and breakfast or Airbnb occupancy, and the average nightly rate will need to be monitored. Small businesses will need to consider the amount of effort it will take to gather essential metrics and the source. In small operations with less than ten employees, it may be difficult to have anyone designate time compile metrics. Once the required metrics are identified, they must be reviewed.
Metrics need to be reviewed at regular and scheduled intervals. The intervals will depend on the type of work being performed. A heavily automated manufacturing process making small parts may need hourly production monitored. A high-tech research and development department may only require weekly updates. Most small businesses will fall somewhere in between, with daily being a great starting point. When reviewing the metrics, the actual performance must be compared to the plan. When comparing the actual to the plan, the variance will be the result. If the variance is good, a small celebration may be in order. If the variance is unfavorable, corrective actions must be taken to preserve profitability for the company.
Taking corrective actions due to unfavorable results will assist the company in improved performance levels. This step will take proper delegation and oversight by ownership to ensure required changes were made and made correctly. If this step is not taken or taken poorly, all positive efforts identifying, capturing, and reviewing metrics can be quickly unraveled and even have adverse effects on the business. Employees and company leadership tend not to follow improvement efforts if they are not driven and backed by ownership.
Successful businesses are set up to manage by the numbers. Foundation work must be completed before a small business owner can manage by the numbers on a consistent basis. What to measure must be outlined. When to look at the metrics must be identified. Employees must observe a process to ensure corrective actions are taken. A solid foundation of metrics and an effective review process will help small business charge towards desired results.
At Cogent Analytics, we never stop looking for ways to improve your business and neither should you. So, check out some of our other posts for helpful business information:
