Measure to Manage Performance in a Small Business

I think I am doing everything right, yet I am not successful…I wonder why?
If you have been bogged down by that query, you are not alone.

In the early 1900’s, Frank Bettger became the leading salesperson for the Fidelity Mutual Life Insurance Company. One of the ways Frank improved his performance was by measuring the results of his sales calls.
He discovered that 70% of his sales were closed on the first interview; while 7% got closed after the second interview. But do you know the most important discovery? He was spending nearly 70% of his time on calls after the second interview! That means he could cut down his tele-caller cost by 70% and still achieve same results! That resulted in enhancing the value of his calls by…. 725%! (from $2.30 to $19.00!) (Note the clear metrics he used to quantify his output).

Most business owners, including me, get so caught up in the flow, they don’t bother to track where they are going. Tell me how many times in the last few years have you stopped to analyze what is each customer  worth to you in real monetary terms?
You’d be surprised at the discovery. At the end of this exercise you may learn that often the client you cherished as your best customer is, certainly not the best, but often, that customer turns out to be the worst. Measure it for yourself and check it out.

If you don’t have systems in place to identify the bad from others, you can’t understand who is good for your business and who is not. Similarly, if you have good traffic at your site, you must know what site features you can attribute this to, in order for you to build up on those strengths later and multiply your success quotient.

What you can measure you can manage

A machine shop started measuring waste by weighing a trailer where scrap was stored and relaying those figures to the team members. The scrap expense went down by $30,000.  Later, when the owner decided to stop weighing the scrap, the scrap expense once again increased by $30,000!
If you don’t measure it, you can’t manage it. Get it?

Going beyond the bottomline

In my opinion, it’s a mistake to measure your success only in pure financial terms.  There can be certain aspects of your business such as customer loyalty, intellectual capital, employee skills and reputation that also have real worth and value. Measuring these non-financials is also critical as they help you market your services more effectively to your customers.

In their book Measure Up (Disclosure: This is an affiliate link)), Richard Lynch and Kelvin Cross suggest that following measures of success: quality, delivery, cycle time, and waste. By measuring activities in these areas, an entrepreneur can think of alternative approaches to bringing more value to his customers.

Data is apolitical

If you have data to take decisions, then you can be less political because data is apolitical. Your employees will love your company for that!

In short, it’s important to measure success for the following reasons:
• To facilitate corrective actions if there are any performance gaps
• To support strategic decisions and goal setting
• To track your progress towards those goals; and
• To improve accountability

Measure important metrics

I am not here to say that you should measure everything, unless you are a large company. Measure the most important metrics – revenue per month, gross and net profit per month, number of customers, repeat business, number of visitors on your website etc. that are really important to your business. What are the top 10 metrics you should be measuring for your company?

About the author: Chaitanya Sagar is an expert in small businesses and is the CEO of www.p2w2.com,

an online marketplace for services like writing, business consulting, research, software, online-tutoring etc. You can find good service providers and collaborate with them on p2w2. Picture credits:  HBuzacott & Guillermо