You close the books at the end of the month and see that sales were 30% lower than the month before. But the month is over and there’s nothing you can do about it anymore. All you can do is hope next month is better.
Monthly sales matter, but the figure reaches you far too late. What you need is a number that changes earlier and warns you while you still have time to act. That’s what a good key performance indicator is.
Numbers that tell you late, and numbers that tell you early
Your business’s numbers fall into two groups. The first group shows a result after it has already happened, like monthly sales and profit, or the cash left in your account at the end of the month. The second group changes sooner and shows whether that result is getting better or worse.
For example, if most of your sales start with a quote, the number of quote requests you get each week belongs to the second group. If customers ask for fewer quotes than usual this week, your sales will drop a few weeks later. So when that number falls, you still have time to call your past customers or spend more on advertising.
For each result, find the number that moves first
Start by writing down which results matter to you. Then, for each one, look for a number that changes before the result itself does. For these three results, you could track the following:
- For monthly sales, track the number of quote requests you get each week. It shows whether sales are heading up or down several weeks before the sales figure does.
- For the cash left at the end of the month, track invoices that are past due and still unpaid. If that number grows, you’ll know you’re going to come up short well before your bank account runs dry.
- For the customers you lose, track the number of complaints each week, or the number of customers who haven’t bought from you in over two months. Both warn you before a customer leaves for good.
Next to each number, write what you’ll do if it gets worse
Set a limit for each number and write down now what you’ll do if it crosses that limit. For example, if fewer than 15 people ask you for a quote in a week, you call 20 of your past customers that same week. A number with no action written next to it is one you only look at. It never changes anything.
Put these few numbers side by side in a management dashboard and review them every week. If you only check them at the end of the month, they can’t warn you any earlier than sales do.
If you’re not sure which of your business’s numbers moves before the others, we’ll find it together in a free diagnosis session.