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There are Measures and there are Measures
Non-Financial Ratios
Bob Ryan, About Purpose, Inc. ©2002
A few years ago, I was changing my car’s oil and filter in my garage. It was winter and the tires had a bit of slush on them as I drove the car up the portable ramps. All of a sudden, one of the wheels spun, knocking one ramp out. The car ended up at an impossible angle, 2 inches from the side of my garage, and hanging precariously on the other ramp! After a couple of hours of carefully extricating myself from that potentially disastrous situation, I decided I would never change my own oil again in the winter.
In cold cash (no pun intended), I could save a fair amount of money on the oil change, oil and filter, but my peace of mind and sense of safety had been violated. It was no longer worth the financial savings.
Last month, I wrote about financial measurements in the form of ratios, to benchmark and monitor your business. (Read that issue.) But as everyone knows, finances are only part of the story. People and businesses make decisions on what’s truly important to them – time, status, convenience, money, relationship, religion and much, much more.
What are the key measures that gauge the success of your business? Sit down with your staff and identify those things that are really important to your winning and keeping customers; those things that translate directly into quality; those things that give you a decided edge over your competitors. Figure out how you can measure them on a regular basis and then keep track. Study the trends and discuss their significance in planning meetings.
Here are a few suggestions.
Repeat to New Customer Ratio: Monitoring this number can tell you a great deal. If it is high, it may mean that your are doing a great job retaining customers – or it may mean that you are doing a lousy job attracting new ones. So look at it along side this next suggestion.
New Customers to Total Customers: This measure will help you see if and how you are expanding. If total business increases while new business stays the same or decreases, you could be headed for an unpleasant surprise as the market changes. You may find that your product or service no longer meets the needs of the market, or that a competitor has trumped you in price, quality or service.
New-to-market Customers vs. Competitive Steals: This is a variation on market share. How many of your customers are first time buyers in your market vs. those you have stolen away from a competitor? This measure gives you a proxy glimpse at your marketing effectiveness and at whom it’s aimed. And/or it may suggest a quality, service, price or features advantage over your competitor. It’s very important to know both who your customers are and why you have them. (Even churches use a variation of this measure when they look at new converts compared to transfers from other churches. Are they saving souls or providing better support?)
Prospect to Bid and/or Bid to Sale and Sale to Delivery: All three of these are very telling, especially for companies who deal in “big-ticket” items. (Note to retailers and service providers: Don’t skip over these. Just recast them in terms that make sense for your business, such as conversion rates for shoppers, up sell success, etc.) These three taken together give a fairly holistic picture of your business. How effective is your sales force? How well do sales people work together with operations people? How efficient is your manufacturing and delivery process?
Quality Measures: Of course, there are a raft of measures to monitor and determine quality of your product, processes, services, after-service, etc. If you do not have a formal quality program in place, you are probably losing time, money and customers. While there are numerous definitions of quality, my favorite comes from a colleague, Dale Mize, of Advanced Quality Engineering: “Quality: Those attributes of a product or service that meet the needs and expectations of the user, as perceived by the user.” That means that your measures had better be key to your customers’ perceptions. (Find Dale at www.quality-inc.com ).
Any good business owner knows financial measures are crucial to running an enterprise, but there are many more measures that are germane to your business. The important thing is that you spend the time analyzing what is key to the success of your business and that you measure and monitor it.
The extra money I spend on oil changes is nowhere near as important as the comfort and safety I now enjoy taking my car into the experts.