By Paula Felps

 

You wouldn’t go on a trip or vacation without first mapping out a plan to reach your destination. But that is exactly what business owners do when they don’t map out a clear-cut plan to reach their goals and milestones.

Measuring and managing goals can be tricky. Businesses that set their objectives too high run the risk of falling short, which can lead to frustration among leaders and undermine morale. But setting goals too low might mean missing out on valuable opportunities for growth.

Of course, not everything is easily measured – such as aspects of human capital including creativity, employee satisfaction, and that ever-important human connection with customers and employees. These are difficult to assign to a simple metric. But certain areas of business require regular attention and measurement to make sure your business is headed on the right path. It’s almost impossible to achieve and sustain success when these areas fall short.

What must be measured?

According to Forbes.com, the following are important areas for businesses of all sizes to measure:

  • Sales revenue
  • Customer loyalty and retention
  • Cost of customer acquisition
  • Operating productivity
  • Gross margin

While all of these areas are commonly monitored by larger corporations, small businesses often don’t spend enough time collecting and analyzing such data. Other important areas to measure are monthly profit and loss, overhead costs, variable cost percentages, inventory size, and hours worked per process.

Metrics matter

Ron Sturgeon, a Texas-based small business consultant and owner of MrMissionPossible.com, says that staying on top of all of these areas is important because it allows you to know what money is going out, what’s coming in, and what practices are most effective.

In fact, Sturgeon says, metrics are the only way to truly know how or what you need to improve.

“Often you can improve your own results just by monitoring them and making small changes,” he says. “It allows you to hold everyone accountable for results and set goals.”

He says metrics are important for businesses not only to measure progress within a company, but also to compare results with others in the industry. Metrics enable business leaders to get a clearer picture of what is really going on within their company, trace cause and effect, and monitor for problems.

“It allows you to measure the performance of employees, vendors, buyers, and various departments within your business,” Sturgeon says. “It holds everyone accountable for results and allows you to set [realistic] goals.”

Measure of success

Sturgeon says that, while a business owner can delegate the task to a manager or bookkeeper, he or she can easily create a template that is customized for measuring his or her own business. taking care to ensure that measurements are reviewed at about the same time each month.

Joining a peer benchmarking group  can help as well, allowing business owners to learn from peers who are using different methods to measure their businesses. It is a good way to help you determine where one can make adjustments to become more efficient and competitive.