Albeit in various ways, most companies track their metrics one way or another. This may be via dashboard, flash report or KPI portal – the terminology is endless. For our purposes, we will refer to these metric tracking tools as scorecards. There is tremendous truth around what gets measured gets done. There can be scorecards at the company leadership level and others at the department/divisional level.
Many times, the challenge is finding just the right metrics, both how many and what they measure. We will focus on the company level scorecard that should be reviewed by the leadership team on a weekly basis. Keep in mind the same principals apply to department/divisional scorecards.
Let’s start with how many items should be measured on a scorecard. Most guidance on the subject gives a range for the number of items that should be measured, and for our purposes, we believe this is between five and 15 items. Many companies start out with more than 15 items they deem important. Most, if not all, are important; just some are more important than others. Be sure you are focused on the most important. Once you exceed 15 items, it promotes a lack of focus.
Additionally, many valuable metrics require effort to measure. You want to evaluate the cost/benefit of the effort to measure and determine it to be appropriate. In most industries, most of the metrics will be weekly but some will also be monthly or annual.
What to measure
Metrics usually should include both historical results and leading indicators. Typical historical metrics include both financial and non-financial metrics – think revenue, margin, and customer satisfaction.
Good leading indicators go back through a specific process you want to measure. For instance, with respect to revenue, if you track the process of generating revenue to the first measurable action in the chain of actions, you might determine you want to measure the number of new leads generated. If you determine this valuable, you might track number of new leads and then number of contracts or PO’s closed on a weekly scorecard at the company level while also tracking the number of initial sales calls and the number of second meetings at the sales department level.
Measuring a series of actions can give you valuable intelligence that will allow you to predict outcomes in the future with a high degree of accuracy. You realize if you generate 10 new leads each week (company level and departmental metric), eight result in a meeting (department metric) and six result in a second meeting (department metric) with the result being five closing with a contract or PO (company level and departmental metric). This not only gives you intelligence on future revenue but will assist you in determining the manpower needed to staff the sales function, particularly in a growth situation. Using this example, if your average sale were $25,000, 10 new leads a week would generate $125,000 of weekly revenue in the future.
How to get started
At your next weekly leadership team meeting, put a metric brainstorming item on your agenda. Have your leadership team independently generate a list of metrics they believe will allow the team to keep an absolute pulse on your business and give you the ability to predict. Then put all metrics “nominated” on a flipchart or whiteboard. As a group, discuss the pros and cons of suggested metrics and get down to a short list to get started. Most items on the short list should be tracked weekly and have a weekly goal associated with the metric. At the end of the quarter, have a very open discussion about if the metrics on the scorecard are working or not. An indicator of a valuable metric being monitored by a high performing team is that if that metric goes off course, there is a quick and definitive reaction by the team.
The Florida CFO Group is experienced in developing metrics for company scorecards that help Grow, Optimize and Protect your business. If your company doesn’t have a real time understanding of your finances or needs assistance developing a great scorecard, give us a call.