Are you tracking the numbers that matter?

How do you know if this month was a good one?

When I ask owners that question most of them pause.

Not because they don’t have an answer, but because the honest answer is something like “it felt busy” or “sales seemed okay” or “we didn’t run out of cash, so… fine?”

When you were smaller, you could hold the whole business in your head.

You knew every customer, every job, every dollar. You could *feel* whether things were on track.

But somewhere along the way the business got too big for your gut to track it all.

There are more people, more moving parts, more money flowing in and out. And the instincts that served you well as a technician don’t reach far enough anymore.

So you end up working harder than ever, with less of a sense of whether the work is paying off. You’re making decisions about hiring, about pricing, about where to spend. And you’re making most of them on feel, hoping the financial reports at the end of the quarter come back okay.

That’s flying by the seat of your pants. And the bigger your business gets, the more it costs you.

Why you need a scoreboard for your business

It was Warren Buffett who said,

“If you can’t read the scoreboard, you don’t know the score. If you don’t know the score, you can’t tell the winners from the losers.”

I love that line because it names the real problem. It isn’t that owners don’t care about their numbers. It’s that they’re playing a game without being able to see the score, and then wondering why it’s so hard to tell if they’re winning.

Ask yourself the following questions.

• Am I receiving report cards from my accountants and bookkeepers?
• Am I looking at them? Do I know what they are telling me? Do I know which numbers are important?
• Can I make my business and financial decisions by looking at my report cards, or am I flying by the seat of my pants?
• Which levers should I pull to improve my results?

If you replied “no” to any of these, then it’s worth revisiting your scoreboard.

Right now, it’s missing points.

This is why you need to track Key Performance Indicators (KPIs).

What is a KPI?

KPIs are measurable values that show how effectively a business is achieving its key objectives.

For example, if your objective is to increase revenue, your KPI might be monthly sales growth.

Most financial reporting works like a rearview mirror. It tells you what has already happened. That’s useful for understanding the past, but it doesn’t help you make decisions about the future.

That’s why it’s important to track leading indicators. These are KPIs that give you insight into what’s coming. If you’re trying to increase sales, you might track the number of leads generated each month rather than only looking at the revenue that eventually shows up. The leads come first. By the time the revenue lands, the result is already decided.

The whole point of a good scoreboard is to give you a windshield, not just a rearview mirror.

How to choose the right KPIs for your business

This is where most owners go wrong. They either track nothing, or they try to track everything and drown in numbers that don’t mean anything.

Start with your business goals. Identify the objectives that matter most, and choose KPIs that line up with them. The number has to point at something you actually care about.

Keep it simple. Choose a small number of KPIs to focus on. If you have too many numbers to track, they all become meaningless. I suggest no more than three numbers per department, and keeping your reports to a single page.

Create a dashboard or scorecard. Put your KPIs in one place so you can see them at a glance and spot trends or trouble. A simple Excel or Google Sheet is plenty to start.

Make tracking a regular part of your routine. Review your KPIs weekly, monthly, or quarterly – whatever fits your business. Assign them to the people responsible and discuss them in your regular meetings.

Be proactive. Use your KPIs to catch problems before they become disasters. If sales have been slipping for a few months, that’s your signal to look hard at lead generation now. Not after a bad quarter forces the conversation.

Make sure you have balance in your KPIs

The Wells Fargo scandal is a prime example of what can go wrong when KPIs are not used appropriately.

The bank had set ambitious sales targets for its employees, and many employees felt pressure to meet these targets or risk losing their jobs.

To meet these targets, some employees resorted to unethical behavior, such as creating fake accounts for customers without their knowledge or consent. The scandal ultimately led to billions of dollars in fines, loss of customer trust, and damage to the bank’s reputation.

Want to avoid this?

Choose your KPIs so they balance each other. For example, choose sales metrics and customer satisfaction metrics. (If Wells Fargo had been paying attention to customer satisfaction, they could have flagged the problem sooner.)

Make sure your team understands that the numbers are just a scorecard to measure progress towards a goal, not the goal itself.

Otherwise, there’s a risk that the focus becomes “hitting numbers at all costs”, which can lead to a culture of unethical behavior and negative consequences for the business.

What to track: some KPIs worth considering

This isn’t a list to track all at once. It’s a menu. Pick the few that line up with what you’re trying to accomplish right now.

For sales

• Revenue: the total your business generates from sales. Tracking it over time helps you spot trends and adjust your approach.
• Sales Growth: the percentage increase or decrease over a period. Positive growth tells you the business is expanding.
• Sales Conversion Rate: the percentage of leads that become paying customers. A useful way to find the leaks in your funnel.
• Average Order Value: the average dollar amount per sale. Raising it grows revenue without needing more customers.
• Sales Cycle Length: how long it takes to close, from first contact to final purchase. Watch for bottlenecks slowing things down.
• Sales Pipeline Value: the total value of everything currently in your pipeline. Good for forecasting and planning.

For customer satisfaction

• Net Promoter Score: a one-question survey on how likely customers are to recommend you. The classic counterbalance to a pure sales metric.
• Customer Retention Rate: how many customers keep doing business with you over time. High retention is a sign you’re delivering.
• Churn Rate: the flip side. The rate at which customers leave. A climbing churn rate is an early warning worth heeding.
• Customer Lifetime Value: the total value a customer brings over the life of the relationship. Helps you decide how much retention is worth.

For overall business health

• Cash Flow: the money moving in and out. The number that keeps you solvent, regardless of what the P&L says.
• Gross Profit Margin: the percentage of revenue left after the cost of goods sold. Tells you how efficiently you’re generating money.
• Operating Expenses Ratio: the share of revenue eaten by operating costs. Lower is generally healthier.
• Employee Turnover Rate: how many people leave over a period. High turnover usually points at a culture or leadership problem.
• Customer Acquisition Cost: what it costs to win each new customer. Pair it with lifetime value to see if your growth actually pays.

When you choose the right KPIs and watch them regularly, you build a windshield for your business that helps you stay on track, make decisions based on reality instead of hope, and see problems while they’re still small.

Get this right and your leading indicators will tell you how the business is doing in real time.

So, when you get your financial reports at the end of the month or quarter, you won’t be bracing for a surprise, you’ll already know roughly what they’re going to say.
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KPIs often sound simple in an article like this one, but appear more complicated when you try to implement them in your own business.

If you’d like some help choosing and setting up the right KPIs, book a complimentary call with me. As a business coach, I can help you identify the most important KPIs for your business and develop a strategy to track and analyze them effectively.