Why measure performance?
This is a great question. Why would you want to measure the performance of your small business? I’m going to lead the witness here to keep this conversation moving forward.
For your current performance management of your small business you probably measure some basics. Top line revenue, your expenses, labor, cost of materials, etc.
The performance management that I’m going to discuss today is focused on the growth indicators of your small business. Many consultants will talk about KPI’s, which stands for Key Performance Indicators. There are so many KPI’s that it can become overwhelming for a small business owner to measure all of them.
As a small business owner myself, I know one thing. If it’s too difficult, it doesn’t get done. I want it simple and effective.
What do you measure?
I’m going to share with the 3-Core performance management indicators that will tell you everything you need to know about growing your small business effectively.
The Key 3 are:
- Your average sale
- Your conversion percentage
- Your number of new prospects
If you track these Key 3 performance management indicators, you will know everything you need to know to make sure you’re on track to grow your business.
What do you look for?
In looking at the average sale of your performance management indicators I want you to think of McDonald’s. Why McDonald’s? Because of just one phrase they made famous. “Would you like fries with that?”
Increasing your average sale is one of your key performance management indicators of your business growth. It let’s you know how many sales are needed to hit your goals, and break even for the year.
It’s as simple as dividing your total sales dollars by the number of sales. Bada boom, bada bing, there you have it.
Your conversion percentage in your performance management growth will tell you the effectiveness of your conversion system. Your conversion system is the process where you take your prospects and turn them into paying clients.
An easy way to do this is to figure out when you or your people are in front of 10-prospects, how many of them buy. If for example you convert 3 out of the 10 into paying clients, your conversion percentage is 30%. If you increase your conversion percentage to 40% or 4 out of the 10, you just grew your business. And you grew if very effectively because you didn’t even have to get more prospects in this case.
Your number of new prospects within your performance management indicators will help you determine if you’re going to achieve your sales goals. Your business must continuously have a steady stream of new prospects, or you will eventually go out of business.
Your marketing efforts will be the major generator of new prospects into your business. You can start linking your marketing efforts to the number of new prospects for your business. This will also help you justify and understand the cost of getting a new prospect.
Your next actions
So to wrap this up with a nice little bow, here is what you can do for performance management in your small business.
- Keep track of your average sale each month. See the formula above.
- For every 10 prospects you talk too, track how many convert into paying clients.
- Count the number of new prospects you see each month.
When you start tracking the Key 3 performance management indicators, you will know the health and growth of your top line revenue for your small business. When your top line sales are growing, your life becomes much easier. And the side effect for you becomes less stress and more happiness. Along with a host of other benefits.
What’s the consequence of not tracking your Key 3 performance management indicators? Well?only you will know how bad that makes you feel when you’re not sure where you’re going, or if you will even arrive.
So start tracking your Key 3 performance management indicators to help you grow your small business effectively.