Track Key Performance Indicators

To adjust to market conditions quickly and do more of what’s working and less of what’s not working, you need to track and measure your activities and the results of those activities.

As you engage in this process you’ll likely find corollaries between routine business activities and revenue growth. These corollaries are key performance indicators.

“Every business,” says Michael Iverson, President of Trillium Financial, “should be able to find a certain key indicator that can predict their sales or revenue numbers for the month.

The trick, of course, is uncovering exactly which numbers have that relationship in your business.” Iverson recommends tracking these metrics to see which offer the greatest clarity into what drives your revenues.

• Trailing 12-month sales average: To get a visual of your true monthly sales progress, track, monitor and graph sales on a 12-month moving average.
• Operating profit percentage: This metric reveals profit on standard operations and should be tracked monthly and on a trailing 12-month average.
• Accounts receivables cash conversion cycle: Track how long it takes in days to collect cash from the time the bill is sent.
• Days inventory outstanding (DIO): Track your inventory. In theory, you should keep the least amount of inventory on hand as possible. The longer inventory sits unsold the more it’s a drain on your cash.
• Working capital as a percent of your revenue: Measure how much of your operating profit gets absorbed into working capital. Look at the number of days net working capital is invested every month (or cents on the dollar of what’s invested). If you don’t have enough cash flow to cover what you’ve got invested, you’ve got a problem.
• Return on capital employed (ROCE) percent: ROCE measures the efficiency and profitability of your capital investments. For example, capital assets such as trucks and computers should help make the business more efficient, cut down on costs and realize greater profits. The ROCE percent also indicates whether the company is earning sufficient revenues and profits in order to make the best use of its capital assets. The higher the percentage the better.

“These metrics can give a business owner an easier way to digest information and act,” says Iverson.

Sales teams should closely track sales specific indicators, including qualified leads, proposals delivered in person (or via web conference), close rate, total number of customer touches, and the number of leadership team sales calls. Brad Hams, president of management consultancy Ownership Thinking, warns that sales teams, if allowed, will use discounts to get sales. “This is a dangerous strategy, and a difficult one to escape from once customers become ‘trained,’” says Hams. “Salespeople should focus on margin, not just revenue. The worst-case scenario is when they are commissioned on revenue and allowed to manipulate pricing significantly.”

Hams recommends that businesses track these salesrelated indicators:

• Average margin % per job (by salesperson and aggregate)
• Margin % variance from plan (by salesperson and aggregate)
• Total margin $ delivered (by salesperson and aggregate)
• Total margin $ delivered variance from plan (by salesperson and aggregate)

He also suggests that businesses track numbers on existing clients, such as how often they receive “touches” and personal visits.

Tracking key indicators over a period of time will give you an idea of which numbers (and which activities associated with those numbers) are key to improving sales and revenues for your business.