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Manage What You Measure (Measure What Matters)

Everyone has a unique story as personal as his/her signature. I’m always intrigued and excited to learn new things about the people I’ve met and the fascinating details and experiences of their lives. The more compelling the story, the more I want to be swept into it.

Stories don’t just end with people; every business has a story too. Numbers and data play a significant role in shaping the account of any business. Numbers and the accompanying data tell a story about the business, like how well it’s run, the commitment and focus of the executive team, and whether the company performs above average, below average, or somewhere in between. The information used and managed will determine its written story and whether it’s compelling enough for anyone to want to learn about it.

An owner or manager will always pay attention to what matters most to them. Notice where they devote their time and energy and you’ll discover those things held dear to them. Lessons can be learned by watching others and applying their behaviors, determining what makes them successful, and implementing these findings within your organization.

Peter Drucker, the father of modern-day business management, is associated with this time-honored quote: “If you can’t measure it, you can’t improve it.” Consider this: You can’t improve something if you don’t measure it, track the progress, and document the results.

Several years ago, I started tracking my blood pressure. I know it’s something older people do, right? At the time, I was placed on medication to control my hypertension. I didn’t want to spend the rest of my life controlled by meds. So, I started to make changes to my lifestyle, tracked my progress, and measured it through regular blood pressure readings. The overarching objective was to either eliminate or reduce my dependency on drugs. Today, my daily dosage is half the original amount and this story is still being written.

Achievement doesn’t occur by happenstance or by hoping that someday a goal will be accomplished. It happens because a priority is set and created as an “it matters” scenario. The objective is established, progress measured, results analyzed, and adjustments made accordingly.

What’s important to you? Do you measure it, track, and manage the results?

Here are some key metrics that you may want to consider measuring. While not a complete list, once identified, these Key Performance Indicators (KPIs) can help keep your hand on the steering wheel. They ensure you’re heading in the right direction toward reaching your most important business goals.

Lead System

A sound lead forecasting system is essential for a kitchen and bath business. All significant sales and marketing information emanate from the accuracy of this system. A lead system begins by tracking all inquiries into a product or service that results in a “lead” or “opportunity” for the business (defined as an exploratory appointment to determine whether there is a mutual fit).

The purpose of a lead system is to provide vital information to be measured at regular intervals. The system should include:

  • A record of prospects, including all contact information
  • Information on the source of the lead which can provide a measurement of the effectiveness of marketing and advertising
  • Number of leads per salesperson in a given period
  • Lead/Retainer closing percentage
  • Lead/Sales Order closing percentage
  • Average project sale per salesperson
  • Cost per Opportunity

Gross Profit Margin Slippage

An adequately prepared annual budget will provide the gross profit dollars required for the business to meet its financial objective(s). Knowing the gross profit dollar amount required — or the gross profit margin (GPM) – isn’t enough if it’s not tracked and measured.

The difference between project estimated costs and the actual produced costs is known as “slippage.” If the job cost reports reveal a higher total cost than initially planned, the slippage can harm the business. Left unchecked over a long period, slippage can be catastrophic. An opportunity to make adjustments or corrections becomes available when measuring every job upon completion.

Monthly Financial Reporting

Too many kitchen and bath businesses base important decisions on their current level of sales – or the amount of money in their checking account. Bad mistake! Neither is proof that the company is profitable, nor that the company can afford another salesperson, display, or truck.

There is no substitute for accuracy in Financial Statements — a responsibility that comes with ownership. While owners or managers don’t physically need to input the data into their accounting software, they do need to know what is conceptually correct in this industry and instruct their bookkeeper (or accountant) accordingly. They do need to learn the fundamentals of reading, understanding, and using their monthly Financial Statement Reports to make sound business decisions.

Reviewing financial statements by the 15th of every month will verify if the business is tracking well according to the budget established at the start of the year. When reviewed monthly, adjustments and corrections can be applied if the company has veered slightly off course.

Another quote attributed to Peter Drucker is, “Management is doing things right; leadership is doing the right things.” You aren’t able to manage and do things right in your company if you’re not measuring, tracking, and reviewing the results. Research has shown that people who follow their progress on documented goals are more likely to achieve them than those who don’t.