5 Metrics Every Business Owner Should Know
We care deeply about the businesses we own, much like a parent cares for its child; both of us invest risk, effort, wealth, and sacrifice, so staying aware of health and growth is a top priority to us. Much like vitals inform a parent at the doctor with their child, metrics allow us as leaders and owners to stay aware – as long as we look at the right metrics.
The key metrics change over time. Just like a pediatrician cares a lot about how many bottles an infant drinks a day, a startup business obsesses over how many leads are in the pipeline on an almost daily basis – but neither is as important ten years later. The five vitals below, though, matter tremendously at all stages in the business journey, so every business owner should know where they score – and what actions these suggest taking.
CASH FLOW: Everyone in business long enough has heard the phrase, “Cash is king!” Keep an eye on the combination of three pieces: your 30 day bank account balance (to visualize highs and lows), your short-term assets (such as Accounts Receivable), and your liabilities (ex. loans and vendor bills). In particular, watch your Accounts Receivable Aging to make sure customers are paying you in a timely fashion rather than treating you like an interest-free line of credit!
THE SALES APEX: The goal in sales is not closing deals; the goal is closing a high enough volume of deals high enough in margin. If your prices are low, your percentage of sales closed (and thus projected revenue earned) should be amazing, but in reality you are deteriorating your margins and working more hours to make less money! As prices rise, so do margins, but at two points your closing rate changes – first, a slowdown when you are no longer the cheapest (which often is not a bad thing!), but then second, a gray area wherein even if you offer a superior service prospects begin struggling to justify your price tag. In the low end of that gray is the sales apex – the optimal balance of high margins and winning often.
CUSTOMER SATISFACTION: If you work hard to gain clients, work hard to keep clients. Set up a feedback system to run at least monthly. “On a scale from 1 to 4 how was our service quality this month?” (Tip: I encourage scales with an even-numbered top score to remove the emotionally lazy “neutral”, ex. 3 on a scale from 1 to 5.) Also popular is the Net Promoter Score (NPS) – “On a scale from 1 to 10, how likely are you to refer our services?”; unhappy people usually will not claim to be happy to help you grow.
DIVISION GROSS PROFIT: As important as Net Profit is to the owner, it only tells us the end result; our overhead picture, and each division’s efficiency, are the ingredients that go into the cake. By looking at performance for each division we can quickly assess where our biggest and/or easiest growth opportunities exist, then dig into the root causes with diagnostic questions. This is challenging without business management software in place, but options can include, “How well the job was sold in the first place?” (margins as sold), “How efficiently did operations execute today?” (budgeted vs. actual), “Would better fleet or equipment reduce our labor percent significantly?”, or “Is either our unapplied labor or overtime too high?” (non-billable hours).
INSURANCE SCORES: Caution! This sneaks up on many owners with a swift hit to the gut! In most markets General Liability, Auto, and Workers’ Compensation insurance premiums will all grow in tandem with your company. (This is because they assess your level of risk partially on your revenue (GL), your fleet and team size (Auto), and your payroll size (WC).) The other risk rating component, however, is entirely controllable: your rolling three year history. Ask your commercial agent to notify you when your annual WC Modifier is getting ready to be pulled so you can sit down together to close (or object to) any outstanding cases. Require your team to notify you of all auto accidents or property damage, and keep a rolling quarterly and annual report of both. Require teams also to fill out “Near Miss” forms to help catch repeat offenders or persistently unsafe habits before accidents occur. Finally, monitor in a company-designated OSHA file any work-related injuries and their 0+ days of work lost to help closely monitor your insurance risk level (and ergo premiums).
Beyond a compelling vision and a positive impact on our communities, Bill Arman of Harvest Consulting Group puts it simplest: “We’re in the business to do two things: grow and profit.” Keep an eye on your company vitals through these metrics to achieve both.
David Rempfer is a veteran operations leader of multimillion snow operations and one of less than 300 professionals in North America to be both ASCA Certified and SIMA Executive CSP certified. He now consults landscape and snow industry executives in their pursuits of business improvement and quality-of-life.