Most business owners keep a close eye on income. They know whether sales are up, whether expenses are rising, and whether there is enough money to meet payroll and other expenses. Those figures deserve attention, but they tell only part of the story.

What activities produced that income? Beyond making sales, how well is your company producing its products or services, delivering what customers were promised, and keeping those customers coming back while attracting new customers?

Choosing useful business performance metrics begins with identifying what each area of your company produces and how those products contribute to serving customers and generating income. At International Executive Technology (IET), we help owners identify the statistics that show how their businesses are performing and where management attention is needed.

Start with Your Final Product and Work Backward

A simple way to identify the metrics you need to track is to start with the final product or service your customers pay for. Then work backward, asking: What needs to be produced at each stage to make the next step possible?

Suppose your company installs flooring. The final product is a correctly installed floor, delivered when promised. Working backward, the installation team needs the right materials, accurate measurements, and clear instructions about what the customer ordered.

Before that, someone had to visit the customer, assess the job, prepare an estimate, and obtain approval. Before that visit could happen, someone had to respond to the customer’s inquiry and arrange the appointment. And before the customer ever contacted your company, someone had to produce marketing that attracted their interest.

The same approach applies to staffing. To have skilled installers available for the job, someone had to train them. Before training could take place, someone had to hire suitable people. And before those people could be hired, someone had to attract qualified applicants.

Each area produces a product of its own: a qualified inquiry, an approved estimate, a trained employee, or a correctly installed floor. Working backward helps you identify these products, see how they support one another, and determine what statistics to track.

Try working through these questions for your own company:

1. What does your customer pay you to produce? Define the product or service and the quality and delivery standards it must meet.
2. What makes production and delivery possible? Work backward through the materials, information, equipment, and coordination your people need.
3. What happens before an order reaches production? Consider estimates, proposals, customer inquiries, and the marketing that attracted those inquiries.
4. What makes a capable team possible? Work backward from employees who can do their jobs to the training, hiring, and recruitment needed to put them there.
5. What encourages customers to return or refer others? Consider the service and follow-up they receive after the sale.

For each area, ask: What should they produce, who is responsible for it, and what statistic would show whether it is happening?

You may discover that you track sales closely but have little information about the marketing that generates them. Or you may have ambitious production goals without knowing whether hiring and training are keeping pace. These connections help you identify the business performance metrics your company actually needs.

Choose Statistics That Reflect What Your Company Produces

Once you identify what each area should produce, choose statistics that show those results. Depending on the company, these might include:

• Marketing: Qualified inquiries generated.
• Sales: Qualified appointments held or proposals accepted.
• Hiring and training: Positions filled with suitable employees or employees demonstrating proficiency in the skills their jobs require.
• Production: Products or services produced to the required standard.
• Delivery: Orders delivered on time or projects delivered by the promised date.
• Quality: Products or services meeting quality standards, positive customer feedback, returns, or work requiring correction.
• Customer relationships: New customers, returning customers, repeat purchases, renewals, or referrals.
• Collections: Payments received and accounts past due.

These are examples, not a standard list every company should adopt. Your statistics should reflect your products, your customers, and the responsibilities within your organization.

Distinguish Activity from Accomplishment

Activity can help explain results, but it should not be confused with accomplishment.

A salesperson might make 100 calls without producing a single qualified appointment. A service department might close many work orders while customers continue calling about unresolved problems.

Counting calls or closed work orders alone could give the owner a misleading picture.

Useful business performance metrics make the expected result clear. What qualifies as a job done? Does it meet the agreed quality standard? Has the customer received it? Everyone recording the statistic should use the same definition.

Look at How the Statistics Work Together

Individual statistics become more useful when you examine their relationship.

Suppose accepted proposals increase, but the number of projects delivered remains flat. The company has sold more work than it is delivering. Management needs to find out where that work is accumulating and what is needed to move it through.

Or perhaps income remains steady while repeat customers decline. New sales may be making up the difference temporarily, concealing a change that deserves investigation.

Completing more jobs is encouraging, but are those jobs being done correctly? Tracking how often work needs to be corrected helps you see whether increased production is coming at the expense of quality.

Statistics point you toward questions. You still need to investigate the circumstances before deciding what action to take.

Put Your Statistics to Work

How much easier would it be to manage your company if you could see which activities were producing results and which needed attention? At IET, we work with you to identify what to measure so you and your team can use that information to improve production, deliver better service, and increase income.

Our earlier article on The Importance of Statistics in Business explains why this visibility matters. The next step is determining which statistics will give you that visibility in your own company.

Our free Business Analysis is a starting point for examining how your company is functioning and where our consulting may help, including identifying the statistics that can give you a clearer picture of performance.