Simplifying Business Metrics for Better Control and True Business Progress
- EOS Process
- December 20, 2019
Data is powerful. Take financial literacy for example. When people are properly educated on personal finances, they can get out of dire financial situations. Some have even been able to pay off tens of thousands of dollars of debt in a relatively short time. The key is knowing your personal data and how to manage it effectively.
The same is true in business. Business metrics are key data points that inform you of your business’s health as well as drive action to keep your business on track. The problem is the amount of data businesses collect is all over the place. Some businesses have tons of data, while others have almost none.
A business’s data gathering capabilities are closely related to their company’s current stage of growth. Newer businesses are less likely to have started collecting significant data. This is because it’s time-consuming to capture the data, distill it, and then present it in an actionable format. This makes it difficult for new business owners to get started with data since they won’t invest the resources unless they believe that it’s worth their time. Is data gathering worth the investment?
How Data and Objectivity Give You Control Over Your Business’s Future
“When you can measure what you are speaking about, and express it in numbers, you know something about it.” – Lord Kelvin
Lord Kelvin gives us a good reason to collect data. But, we can simplify his words further to “what get’s measured, gets done.” Companies like Fitbit and Orangetheory have shown the effect data can have on our lives. When you see yourself on a scoreboard against others — whether it’s a step count, workout routine, or something else — it’s weirdly motivating. Knowing the data pushes you to work harder and continuously improve.
Motivation is one benefit that data can have on your business. But it does so much more. Data gives you objectivity and shows you the true state of your business’s health. It’s easy to let bias and differing opinions from leadership cloud your judgment. But by using data, you can correctly assess your business and be proactive instead of reactive. How so?
Think of the last time you received a profit and loss statement. You saw results from the previous business period, and if you didn’t like what you saw, it was too late to take action. Now let’s think of another financial document: cash flow projections. These are designed to give you a snapshot of your business’s financial health over the next 3-12 months. With an accurate view of the future, it’s possible to make decisions to protect your business’s future or counteract an unfavorable one — giving you control. This sounds great, but how do you know which business metrics you should be tracking?
What Are the Important Business Metrics That Most Businesses Should Track?
When you ignore business metrics, you’re rolling the dice with your future. It becomes impossible to understand what’s really going on with your business and to focus on the steps that help it progress. Instead of helping your business grow, you’re stuck putting out fires just to keep it from crumbling.
Thankfully, tracking the right metrics isn’t complicated. Most businesses have common objectives: make and protect money, deliver a good product to the marketplace, and keep your employees happy. Simple. When you avoid overcomplicating your business, it’s easy to find your most important metrics with questions like these:
- What activities are the leading indicators that our business is bringing in revenue?
- What are the leading indicators that show we are protecting profitability?
- What is the feedback we’re getting from our customers?
- How is our retention of customers doing?
- How is our overall employee happiness?
Every business is different and will measure success differently. So, while these five questions can help identify your most important metrics, it really depends on your business model. For example, a service company might value the revenue per employee metric, while a trucking company might prefer to measure revenue per truck.
Data can seem overwhelming, so it’s important to remember that success comes down to the few metrics that have the greatest impact on your business. Once you identify those crucial data points, it becomes simple to measure success. The Entrepreneurial Operating System (EOS®) pushes business owners to identify 5-15 essential metrics. It helps business owners change the conversation around data by focusing on what matters most.
Identify the Business Activities That Propel Your Business Forward
We tend to overcomplicate data. But, the fundamentals of business are relatively simple. You can discover what you need to measure by answering questions like these: What does a great week look like for my team? Which business activity do I need to excel in to have a great week? Starting with these questions, teams can reverse engineer the metrics and activities that are most important to their business — helping shed the complexity and view data through a simpler lens.
When you see low revenue numbers and instantly understand which activities will help improve them, it’s a game changer. Instead of living in terror of your next financial statement, you can take action, completely in control of your business’s future.
Do you need help simplifying the data? Traction Coach helps businesses like yours identify the most important numbers for your success and hone in on them. Schedule a call with me to talk about how metrics can help you take control of your business.