Measuring your business goals with business Key Perfomance Indicators (KPIs) are an important part of evaluating your progress. Got a great idea but not certain how to implement it? Has your business growth plateaued? Is it time to add employees? Thinking about a new market or product? These are questions most businesses, large or small, look for answers to regularly.
The difference is small business owners or solopreneurs generally don’t have marketing and business development experts on staff. This means they are fighting for time to do this themselves or just simply following their gut with no plan or idea, just that feeling that tells them the idea is a good one.Errors are easy to make and hard to get over. Business metrics make decisions a little more foolproof. They offer a way to check on progress and determine how to tell if your idea is good enough to commit time and money to.
Use your business KPIs to set yearly business goals
Every business should have yearly goals. They can be as simple as making more money, and as complicated as opening a new market. Once yearly goals are determined, strategies for achieving them along with monthly targets should be created. With these business KPIs in place, it becomes easy to see where an adjustment is needed or when you deserve a pat on the back for your gutsy idea.
These three numbers are the bed rock for setting measurable goals for your yearly plan: gross income, average dollars per sale and total number of sales. Once you have these numbers, you are ready to set goals for this year.
Using last year’s gross income, you are ready to decide how much you want to increase year over year. Remember that the amount you increase will not be all profit. Your Cost of Goods will go up as well as Opportunity Costs. The amount you decide to increase should be reasonable but not easy to meet.
Use yearly goals to set achievable monthly goals
With the yearly goal established, setting monthly goals is as easy as dividing by twelve. Of course, there are other ways to set the goals. You could ramp the goals to meet your yearly total by gradually increasing month by month until your goal is met.
Using the total number of sales last year; divide last year’s total Gross by last year’s total sales and you have the Average Sales Price (ASP). By dividing this year’s goal by last year’s ASP you have a pretty good idea of how many sales you need to close this year to meet your target.
There are other numbers important to take into consideration. Your Churn Rates or revenue lost from downgrades or cancellations could be one. Once you have determined your yearly Churn, factor it into your yearly and monthly target goals. This will give you a margin for error by making your goals more realistic.
Conversion Rates are the number of total leads; the number of leads converted into prospects; the number of prospects turned into clients. You can get much more detailed by taking a look at where the leads came from. How many referrals became prospects (sometimes called SQL or Sales Qualified Prospects) and then clients? How many cold calls? How many call-ins? Networking events? The possibilities are endless and the better you are at tracking them the easier it will be to find new clients.
Build a realistic sales cycle
Next, take a look at your monthly goals. It is unlikely you will make your revenue target the first month or even the second. You will need to give yourself or your sales team time to ramp up to meet your goals. You can do this by looking at the Sales Cycle, which is the length of time it takes to close a deal. If, for instance, your Sales Cycle is three months long, the earliest you will see additional revenue will be three months from whenever the new goals are implemented.
It is likely that your existing clients will buy additional products or time. You will want to know
how much they purchased last year and what the average client buys in a year. Multiply this average by all clients and subtract this from your Gross to get a clear picture of how much you will need to earn from new clients.
Put your business KPIs to work for you
Now you are ready to set goals using business KPIs to guide you. There are many Key Performance Indicators out there. You can pay to have this information figured out for you, or, you can do it yourself. I like to do it myself. It makes the goals and numbers more real for me. It makes it easier to explain to staff and partners what is important and how to tell if we are making progress.
Measurable business goals and targets keep you going and tell you where you are. If you know where you are and where you have been; you know where you are going and how long, it will take to get there.