Weekly IMPACT Indicators®
When you remove the subjective elements of running a business and try to do it on objective data alone, how does that change your ability to make the right decisions?
Initially, trying to rely on quantitative data to run your business is a hard thing to do, even if you’re still absorbing qualitative information, too. That’s why designing the weekly metrics you need to run your business needs a perspective you may not be able to attain alone. You have to think outside of the way you currently do things.
Weekly IMPACT Indicators™ are often referred to as a flash, Business dashboard, or KPI reports. KPI stands for Key Performance Indicators. Regardless of what you call it, it should be critical in assisting you predict sales, cash flow and profit and gain clarity on the performance and direction of the company. In addition, it should be an essential decision-making tool used in the day-to-day operation of the firm that empowers you to make the best decisions for your company that will drive cash flow and profitability.
There are three main steps to consider in building an effective Weekly IMPACT Indicators™ report.
- First, you should know the averages and benchmarks for your business and as well as others in the same industry.
- Second, you need to determine the best one to three metrics per department/discipline within your company to measure.
- Third, you should go back and pull as much data as you can for all of those metrics historically to see what you learn and gain from the numbers. This will help you initially determine the metrics you should include on the report. And if you have a hard time limiting your metrics to three, go ahead and include more to start. Then you can cut back once you see which are the most helpful.
Before I cover the different departments/disciplines in the business and how to start figuring out which metrics will be the best, I need to briefly discuss a trend I am seeing with software, both downloaded and online SaaS applications. There seems to be a lot of people and experts talking about buying software to track your metrics, or maybe your accounting software is adding and upgrading features to give you a dashboard for your business.
While I love the way these programs improve accessibility, they come inherent with many challenges. Without the proper procedures and staff in place, this software often struggles to be precise or meaningful. Just pulling information from your accounting system does not guarantee its accuracy, and I’ve seen many businesses be misled because they weren’t looking at accurate information.
Also, these systems generally come with some common metrics and reports, but those pre-canned numbers are often not the most helpful or meaningful to the business. So, software is good, but it needs the help of the right staff and processes to make sure it is designed and then implemented with attention to all of the IMPACT criteria.
To keep this simple, I will break the different departments and disciplines of your business into four main categories, with many businesses needing to track sub-categories and completely different categories also. Marketing, sales, operations, and financial are the four main categories every business needs to include if you want the dashboard to adequately inform you on your deserted island.
Marketing is about lead generation--all of the activities in which you engage to get your message and value proposition, your brand, to the market. And this is where your weekly reports should begin. After all, it’s where your customers start in their life-cycle with you as well. You need leads if you ever hope of acquiring customers. Your Weekly IMPACT Indicators™ should include the top two or three metrics for measuring your lead generation. These may include number of visits to your website and percentage of those visitors that become qualified leads. The key here is to focus on the processes you are currently employing to market and generate leads and measure the efficacy of those efforts. The cost of acquiring a lead should be included if it is measurable, and it almost always is.
Obviously a lead is still useless if you cannot convert it into a paying customer. Conversion of leads to customers is a critical element of your weekly report. In addition, total sales should be included so you know how your volume is doing on at least a weekly basis. Sales should be communicated in terms of dollars, number of sellable units, and average pricing.
Your sales department is responsible to turn the leads into paying customers, and operations desires to satisfy and retain the customers as long as possible. Most business models try to accomplish this by structuring and delivering everything you promise for as little cost as possible. As such, operational effectiveness is what you usually want to measure on your weekly report. Since this differs by industry and business, here are a few examples.
If you are a professional service firm that is mainly selling time in exchange for services, then you are likely concerned about your average cost of paying staff per hour as it relates to your average revenue per hour. You will also be very concerned with ratios like revenue per employee and sales-to-wages.
If you manufacture products, then you will want to understand the efficiency of all of your inputs, including materials (and scrap), labor, contractors, and other direct costs. In essence, you need to look at the major determinants of your gross margin.
You will want to consider three additional metrics on your weekly report that deal with operations. First, an indicator of your current utilization of your total available capacity, remembering that operating at maximum capacity creates the best profit scenario for your business. Second, customer satisfaction and retention metrics are valuable barometers for ongoing sales. And, third, a measure of product or service quality levels.
The marketing, sales, and operations lead to your financial performance. And you will benefit by seeing some of your financial metrics on your weekly report. You need to know what is happening with all of your major current assets, which usually includes cash, accounts receivable (AR), and inventory. You should quantify the performance of AR in terms of total % over 60 days past due as well as the Days Sales Outstanding (DSO). You should also understand if your inventory levels are at efficient levels.
You will also likely want to include some of your major current liabilities, like accounts payable and line of credit balances. This information leads to the tracking of the firm’s current ratio on a weekly basis and other versions of the current ratio that traditionally predict cash flow with some accuracy.
If you received a weekly dashboard report with all of the information above (tailored to your industry and business model), how well do you think you could manage your business from a deserted island? Now, you should imagine having all of that information every week along with being in your business every day, collecting qualitative information as well. Not only will your anxiety decrease and your strategic insights increase, you will feel empowered to make the right decisions to improve cash, profits, and financial health. Even if the weekly report has bad news, knowing about it will still reduce your anxiety because you will at least have the opportunity to do something about it before it becomes worse.
Here is a simple ten step process for establishing your Weekly IMPACT Indicators™. Please do not feel overwhelmed by this list. Remember that using the three-piece puzzle of staff, software, and procedures will make this possible. As an example, I had this entire report up and running in less than two weeks for a manufacturing company, and the executives of the company love it. It is part of their weekly management meetings.
First, don’t buy a dashboard or other software tool. This step needs to wait – remember, software does not solve problems. People, processes, and intelligence solve problems, then software automates and simplifies the solution.
Second, make a list of what you think will be important to track each week. There should be key metrics from marketing, sales, operations, and finance, other departments and business disciplines in your organization on your list.
Third, create an Excel spreadsheet, or a Google doc spreadsheet for those of you living in the cloud, and list each of the things you want to track across the top to create several columns. Then, list the Friday of each of the following 52 weeks down the left-hand column titled “Week Ending.”
Fourth, coordinate with your team where all of the information will come from for this document. It may need to come from several people, so commit them to get the information to you on time and in the format that will work best for you.
Fifth, start tracking all of these metrics for four weeks and see what everyone thinks. What information do they like? What information is missing, and what could be added to reduce anxiety and fear? Then repeat this process for the next three months.
Sixth, once you feel you have your list of items you want on your dashboard pretty well-defined, start to investigate the best ways to automate the collection of this information into your weekly dashboard. The information will likely come from many different software applications, including your accounting system, your CRM, and more.
Seven, start to investigate dashboard SaaS tools based on their ability to pull data from all of your sources. You may find this needs to include some manual input, or it may make the most sense to do it all manually in the spreadsheet you started with.
Eight, purchase a dashboard that solves the highest number of issues in terms of automation, timeliness, and accuracy. Or, if you like the spreadsheet you are using, create some charts and graphs that update each time you update the document with a new week’s data.
Nine, start tracking 4-week, 13-week, 26-week, and 52-week rolling averages to help you spot key trends in the data.
Ten, sit back and enjoy the fruits of your labors with the critical information you need to run your business right at your fingertips. You will be amazed as your anxiety decreases and your strategic insights increase.
|Weekly IMPACT Indicators®|
|Insightful||Helps entrepreneurs run business by the numbers|
|Meaningful||Focus on key drivers in every discipline of the business|
|Precise||Empowers to estimate monthly performance accurately|
|Accessible||via SaaS technology using interactive, powerful charts and graphs so you can spend your time improving your business, not analyzing hard-to-read and even harder-to-understand reports|
|Comparitive||Prior weeks, comparison to goals|
|Timely||Weekly, by the first of the following week|