One of the perennial questions that we get asked at the start of every project is what measures or key performance indicators should we include on our dashboards to help us to better run our business. This is a first part in an ongoing series of business metrics. There are four main areas that every business needs to measure as part of any enterprise reporting project, these include: Marketing, sales, operations, and financial
Marketing & Lead Generation
Lead generation is where it all begins. You need a continual flow of leads to ensure ongoing customer acquisition. Key metrics may include the number of visits to your website and percentage of those visitors that become qualified leads.
The metrics you choose need to reflect the processes you are currently employing to market and generate leads and the efficacy of these efforts. The cost of acquiring a lead should be included if it is measurable.
Sales
Leads need to be converted into paying customers if they are to be of any value. As part of your metrics measuring your sales funnel as customers move through the sales process is critical.
In addition your total sales need to be measured on at least a weekly basis. Sales should be measured in terms of dollars, number of sellable units, and average price per deal.
Operational Effectiveness
Growing leads and sales is part of the problem – delivering your product and service efficiently is the next. You need to structure your business processes so that you deliver everything you promise for as little cost as possible. Let’s review a couple of examples.
As a professional service firm that is mainly selling time in exchange for services your metrics should include average cost of paying staff per hour as it relates to average revenue per hour. Ratios such as revenue per employee and sales-to-wages are also critical for long term performance.
As a manufacturer you will want to understand the efficiency of all inputs, including materials (and scrap), labor, contractors, and other direct costs. In essence the major determinants of your gross margin.
Three additional metrics that deal with operations are worthy of consideration. First, an indicator of your current utilization of your total available capacity. Second, customer satisfaction and retention metrics are a valuable barometer for ongoing sales. And, third, a measure of product or service quality levels.
Financial
In managing financial performance you should understand what is happening with all of your major current assets. These usually include: cash, accounts receivable (AR), and inventory. You should quantify the performance of your 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 may want to include some of 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.
One of the goals of a successful BI project is to deliver the information you need to run your business in an easy to consume format. Assume that you had a weekly dashboard that delivered all of the information above (tailored to your industry and business model), how well do you think you could manage our business?