What are KPIs and why do I need them?
Key Performance Indicators (KPIs) are the scoreboard for your business. They’ll tell you where you are winning and where you need to improve. Imagine going to a basketball game where there was no scoreboard. Just two teams playing basketball. You’d be outraged and demand the score be displayed. Yet, like many other business owners, you run your business, your livelihood, your retirement strategy, without a scoreboard.
Why are KPIs Used
As a Business Owner, you sometimes feel overwhelmed and distracted with all of the daily activities and tasks. Yet you must make important decisions, quickly, with great consequences, and often with limited information on hand. Without the right KPIs to guide you, you tend to focus too much on the tactical daily issues and neglect the strategic decisions that have critical impact on your success. You can’t manage or grow what you don’t measure.
What KPIs Should be Used For
KPIs will communicate and inform – your team, suppliers, and customers, about the business situation. They act as a diagnostic to tell you the health of your business in many different areas. They are a source of learning – which marketing, which programs are working or not working. And they guide your decisions and help you define what action to take next.
What they should NOT be used for is controlling. It’s tempting to try to control employees and others using KPIs. I’m not saying don’t use them with employees, but use the right ones, and use them for continual learning and improvement, not to control how many times a day they use the restroom.
How To Implement KPI’s
Step 1: Define your strategy
- Strategy reflects the company Vision, Mission and Values – do you have yours well-defined?
- Set goals
- What are your most important business objectives?
- What “drivers” are critical to success?
- What impacts driver results?
- Which can align team members on strategic issues?
- Which can identify barriers to growth?
Step 2: Audit Existing Measures
- Assess strategic fit of your existing KPIs
- Identify what data is available
- Review measurement processes
- Review Accuracy
- Review Timeliness
- Identify gaps
Step 3: Develop New Measures
- Bridge the gaps identified in Step 2
- Measures must reflect performance and progress of business
- They are quantifiable
- They are actionable
- They are comparable with another number
- Last year
What are the trends? Look at your KPIs over time to see more deeply what they’re trying to tell you. A measurement by itself with no comparison is not as revealing.
Step 4: Analyze and Report
- Make it easy to read
- Create a one page summary
- Include visuals & graphs
Step 5: Continuous Improvements
- Set priorities based on strategy
- Ensure your goals are SMART
- Assign accountability!
- Track improvement
- Set new goals!
Start today by listing the key drivers in your business. If you’re not sure, start measuring the 5 Ways numbers: 1) Lead generation – where are your leads coming from; 2) Conversion – how many do you turn into customers; 3) Average dollar sale of each transaction; 4) Number of transactions – how many times does a customer buy; and 5) profit margin, gross and net. Sign up for a workshop to learn more.
This article provides an overview of the five steps of setting KPIs. Look for more details on each step coming up in the next posts.
How often do you ask yourself if you’re paying for marketing that doesn’t work?
In my sessions with business owners, I will sometimes ask if they would hire an employee for $40,000 a year and then never check to see if they accomplished anything or even showed up to work. They usually look at me as if I have two heads, and say “Of course not!” Then I ask, why they do just that with their marketing budget? Then the look changes to mild guilt.
Obviously, your marketing budget may be significantly more, or a lot less, but the principle remains the same. Our marketing spends are often determined by what we have done in the past, or what we feel is affordable. I spoke to a business owner who told me they stopped advertising in a directory completely after having run the equivalent of a full-page ad for an extensive time. When I asked why, they said it was too expensive. I asked what type of results they had gotten, and if they received any type of reporting. The business owner indicated the reporting was excellent, but they were too busy to ever look at the reports.
“If you can’t read the scoreboard then you don’t know the score. If you don’t know the score, you can’t tell the winners from the losers.” Warren Buffet
I’m not promoting one advertising medium over another as they all have their strengths and applications. I am saying that unless you want the equivalent of a $40,000 employee that does not show up, it is imperative that we test and measure the results from our marketing to make informed decisions on what to increase, decrease, add and subtract. Here are a few simple concepts to start the process.
Define your purpose for the marketing investment:
If the purpose of the marketing is to drive revenues and profits, then the measurements of success need to reflect that. If the purpose is something else, like create brand awareness or educate, then adjust your measurements accordingly.
Track your leads and record the prospect’s data:
At the very minimum always ask the prospect some version of “How did you hear about us?” Collect their information and put it in a database. The goal is to know how many leads (and ultimately how much profit) per week or month are coming from each marketing medium and be able to continue to contact those leads. I know from my mystery shopping this is a huge leak in the pipeline for most businesses.
Know your key numbers:
Marketing is simply a matter of buying clients for less than their lifetime values. Many businesses will not break even until after a new client makes more than two purchases. A chiropractor and a hair salon are two good examples where loyal clients have many transactions over a period of years. The two key numbers are acquisition cost (cost of gaining a new client) and lifetime value (how much in total the average new client will spend as your client). The key to making marketing an investment is to keep the acquisition cost as low as possible while driving the lifetime value as high as possible. How much do customers from each lead source spend with you? Do you know your numbers?
Use the information you collect to make educated decisions:
Once we record the information over time, we will know the acquisition cost for each marketing method as well as the number of new clients driven by each technique. You will likely notice a significant difference in the lifetime value of clients from different method. Build the information over time and use it to determine how to allocate your budget.
There are entire books written about these concepts and others. The real key is to start systematically recording your information now to increase your revenues and build your decision-making database.
Whatever you do, make sure you’re getting a great return on your investment from that $40,000 employee!
Learn more about marketing and other business results generators at GrowthClub June 20th.
Time – Can You Ever Get Enough?
Whether you own a business or work for someone who does, you have probably experienced the “never enough time” phenomenon. When I worked in the high-tech world, we never had enough time to do it right, but always plenty of time to go back and fix it later. This practice was also known as using the customers for beta testing.
If we want our businesses, and ourselves to thrive, then we must focus on two things: 1) doing the right things, and 2) doing things right. Stephen Covey, in his book “The 7 Habits of Highly Effective People” offers a powerful tool, the Urgency vs. Importance matrix to achieve both goals.
In this matrix, Quadrant 2, is a set of activities in a business, or your life, that are Not Urgent, but are Important. This quadrant is the Zone. The Zone is that place where you set aside all the busy work of the day and focus on the things that are truly important for your long-term success. These are activities like planning, strategy, learning and cultivating relationships.
So how do we get in The Zone? First and foremost, you make a conscious decision to get there. It will not happen naturally, because these tasks are not urgent, they are not in your face demanding attention!
When was the last time your most important client called you up and demanded that you get to work on your cash flow forecast? Probably never, but when was the last time a client complained that you didn’t have the right parts in stock, or that her order was a week late? Did you take the time to tell her that earlier this year you failed to budget for parts stock, or that you failed to plan to replace that aging equipment?
This is one of the hardest things for my clients to see. They are constantly in the “urgency” quadrant, specifically because they don’t spend enough time in the zone. Every day I hear about how overwhelmed they are, because of all the urgent daily demands. Getting in the Zone takes practice to become a habit. Here are some tips for how to do so.
Put it on your calendar on a regular basis
Scheduling time for planning activities is probably the best and maybe the only way to ensure that they get done. You should spend 20% of your time in Zone activities, but that doesn’t necessarily have to be weekly. It could be on a monthly or quarterly basis. One way is to allocate 4 hours per week to planning (medium-long term, not short-term), plus 8 hours per month, plus 16 hours per quarter, perhaps in an off-site session like GrowthClub.
Establish a system for accountability
Accountability will help you reinforce the need and the habit. It can be a coach, an accountability partner, a mastermind group, a partner, a spouse or anyone that you will feel accountable to for following through. Be sure that they know to ask you when and how you are allocating your time. Be sure that you have deliverables to them for the output of your planning, then review and discuss it with them. HINT: if you’re not willing to do this, you’re not committed to achieving the goal.
Break up the work and the time into proper-sized chunks
Some people work best in 30-45 minute bursts, other prefer 2 hour chunks of time. Pay attention to your own attention span and work style. Then allocate the most efficient periods of time for you to get your Zone work done. Break up the work into properly sized chunks so that you can accomplish something meaningful in each time period. Know yourself, and when you set aside your Zone time, make sure the chunks of time will be most effective for you.
Pick the right time of day for your Zone activities
In every business and for every person, there are times of day or days of the week that are better or worse than others. If you know that Monday mornings are always crazy, don’t allocate any Zone time for Mondays. You also know your own daily flow, so be sure to schedule your Zone time at a time of day that is best for the type of thinking you will be doing – creative out of the box brainstorming or detailed number-crunching.
If you want long-term success in your business and life, it takes this kind of intentional disciplined planning. Success rarely happens by mistake. Be sure that you are always planning for success, not just this week, but for the next decade.
If you want to really learn how to get into the Zone, come to my TimeWise workshop Friday March 17, 2016 11:30 – 1:30.
Top 10 Tips on Leadership
What’s the difference between leadership and management? A manager tells people what to do and advises them on how to do it. A leader inspires people to achieve great things, and encourages and motivates them to find ways to do it. Yes managing is faster in the short-term, but leadership is the only way to leverage yourself and cultivate your ideas beyond what you can personally accomplish.
Here are 10 simple things, that you can do, starting today to be a better leader:
- TALK ABOUT THE FUTURE – Leaders think about the future and help others see the future. As Mark Collar says, “Leaders teach people to dream, not just execute”.
- TEACH SOMEONE SOMETHING – Leaders are engaged in their organization and committed to growing organizational capability. Nothing sends that signal stronger than taking a moment to teach someone something.
- SEEK OUT A NEW IDEA – Actively look for ideas and then champion them in the organization. This says a lot about your ability to accept change as a leader.
- TELL SOMEONE THEY DID A “GOOD JOB” – Leaders are not afraid to hand out praise when a job, large or small, is well done. This builds not only enthusiasm for the work, but trust in your management.
- GET MAD, THEN GET OVER IT – Leaders all have passion for the business and sometimes this passion turns to anger or frustration. This shows you are only human. An effective leader has the capacity to move beyond emotion into constructive action.
- MEET SOMEONE NEW IN YOUR ORGANIZATION – Get out of your office and say “hello,” to someone new in or near your group. It’s guaranteed that you will learn something and it is visible proof to your organization that you care.
- SAY “YES” – Leaders aren’t afraid to make a commitment, to make a choice, to move on. Find something where you can say “yes.” Nothing says you trust your organization more than the power of agreement.
- ACTIVELY LISTEN – Many of us talk about being good listeners, but few of us are really good at it. The next time you have the opportunity to listen to someone, use clarifying and confirming skills, but don’t offer a point of view until the presenter says, “What do you think?”
- BE ENTHUSIASTIC – Leaders have enthusiasm and energy. They transfer this energy to the organization and the business issues at hand. Practice being outright enthusiastic about an idea and watch how people change.
- HAVE FUN – Leaders typically enjoy what they are doing, no matter how tough the task. People want to follow someone who enjoys what they are doing.
One of the most common denominators in all the personal growth communities and books is the importance of setting goals. You have to know where you want to go, so that the path can be revealed. The more complex your desires, the greater the power of long-term goals, short-term goals, lifetime goals and personal goals.
The benefits of Specific, Measurable, Achievable, Results based, Time-framed (S.M.A.R.T) goals have been written about for years. So, many agree, setting goals is a powerful process.
It is about ‘eating the elephant, one bite at a time’ and of turning vision into achievable, actionable things. It’s the common denominator of successful individuals and businesses.
Despite their obvious value, our experience with goals have shown that some are good at setting goals and sticking to them, achieving great results and others can’t keep a New Year’s resolution to stop smoking for two days in a row.
Failure to set goals can be seen as a fear of failure. That is, the blow to your integrity when you don’t reach your goals. When you make and keep commitments, such as setting and achieving goals, it reflects the amount of trust you have in yourself. You increase your confidence in yourself to make and keep commitments to others and yourself. However, when you don’t achieve your goals you lose confidence in your ability to make and keep commitments and to trust yourself.
There are many reasons why we don’t achieve our goals. Sometimes the goals we set are unrealistic. New Year’s resolutions are typical examples. Suddenly, we expect to change the way we eat, or the way we exercise just because the calendar changes. It’s like expecting a child that’s never ridden a bike to suddenly jump on and go, or to run a marathon without months of training. These goals are based on illusion with little regard to natural growth. You must crawl before you walk.
So, how do you set and achieve goals? Stephen R. Covey says it best in his book “7 Habits of Highly Effective People”. “To begin with the end in mind means to start with a clear understanding of your destination. It means to know where you’re going so that you better understand where you are now and so that the steps you take are always in the right direction.”
An example of a S.M.A.R.T. goal might look something like the following:
Specific – WHAT
My goal is to grow my business by 25% in the next 12 months.
WHY So that:
I can contribute to my retirement fund and retire in 5 yrs.
- Hire a business coach
- Increase business with existing customers by communicating regularly with them
- Develop an effective Sales Process to increase my conversion rate from 35% to 50%
- Enter a new market for my existing products
Focusing on the smaller, short-term goals and achieving success will give you the confidence to set other goals. So, remember, set your goals based on the S.M.A.R.T. principle to have the best chance of achieving your goals.
Do you want to be SMART? Join us at GrowthClub 90 day planning Sept 21, 2016 and start being SMART today.
Freedom of speech is one of the pillars of our constitution. What about freedom of listening? Effective communication relies more on good listening than it does on speech. Both are key to the overall development and progress of your team. Without effective communication, your team and your business will lag behind in many areas, be less productive and less happy working for you.
If you want to improve communication skills for clarity and effectiveness, here are some vital tips for you to follow:
1. Listen Carefully
Let’s admit it, we all struggle with this. Yet there is one very simple way to ensure you are truly listening. Stop the voice in your head. You know the one. While you are listening to someone else speak, its constantly chattering to you about your retorts, answers, opinions, corrections and responses to what they are saying. Stop it. Stop planning what you are going to say back to them, and just listen. When it starts up again, stop it again. Focus all of the energy you can muster on listening intently on what they are saying, with the only objective being to really fully understand what the other person is trying to communicate and what they are feeling.
2. Body Language
Freedom of speech also includes body language. Often, we don’t realize the significance of our body language, yet it is 70% of our communication. After all, actions speak louder than words. Your facial expressions, eye contact and gestures reveal everything, even though you do not utter a single word.
Exercise to improve your posture. Stand straight and smile to stimulate positive feelings. Always maintain eye contact when talking to someone. Use open body gestures. Watch your facial expressions and the tone of your voice. At the same time, educate yourself about different non-verbal communication signals in different countries, cultures and societies. For example, a handshake is considered rude in some countries, whereas is it a common practice in the US.
3. Read and Write
In order to improve your verbal communication, read and write as much as you can. Read books, the newspaper, online news and articles, blogs or anything you want to boost your vocabulary and improve your writing skills. Listen to audio books while you are driving or getting ready for your day in the morning.
4. Ask Questions
Asking questions helps clarifying things. It shows that you have interest in having a conversation by keeping them engaged. It shows you are truly listening with the intent of fully understanding what the person is trying to communicate. It also helps overcome the fear of small talk in situations where you don’t know people.
5. Manage Stress
Stress is a major impediment to effective communication. Learn to manage it. Use humor in your conversations, keep calm, or be passionate. Be healthy, exercise, go for walks, take breaks from your day and drink lots of water.
The ability to communicate and listen clearly, concisely and coherently takes years of practice. Practicing these skills will not only improve your communication skills, but also improve your business results, and the quality of your life.