Business owners are usually pretty good at monitoring the performance of their staff (and rectifying it with a short, sharp kick…). On the other hand, and more often than not, they’re not quite as good at monitoring their own performance.
In short, monitoring performance means keeping an eye on the scoreboard to see if you’re progressing towards your targets, whatever they may be.
What you count as point scoring is up to you. The important thing is making sure you keep the score – we’re not playing Kiwi Cricket. Once you are keeping score, it’s easy to see the improvement in your business from any small tweaks or changes you make.
You could decide to keep score by monitoring your gross profit margin. The margin you aim for is entirely dependent on you and your business. We’ve seen large firms with gross profits up to 65%, with some smaller firms down around 35% (the average would be around 55%).
A number of factors will influence your targeted profit margin. A large business may receive better prices from suppliers, meaning they have a higher margin. On the other hand you may focus solely on new builds, which has different margins from business focusing on commercial work.
Measuring profit margin might not be your thing. If lifestyle is important, measure the number of days you take off (and I mean days you take completely off…not “off” where you’re in the office doing paperwork). If customer satisfaction is important, count the number of repeat customers you get, or the number of referrals from existing customers you receive each month.
Alternatively, you might prefer to keep tabs on your cashflow and how easily you’re able to pay the wages and creditors. To measure this you could simply count the number of times you go into overdraft, or calculate the average time people take to pay you.
What you see as winning may be completely different to the next business. The main thing is keeping the score and coming up with an achievable but challenging target to aim for.
Once you’ve got your target, and have measured where you’re at, you can start making changes to improve your business. Say you’re measuring the average time people take to pay you. Say it’s currently sitting at 35 days. You then decide to charge interest on all payments after 14 days of invoice. If this brings your average down to 30 days the new policy is obviously a success. The key is measurement and having a target to aim for.
There are a few places you can go for help with setting your targets. Firstly, the IRD provide statistics on certain industries. There’s also Statistics New Zealand who has a bunch of tools to help you understand your customers, competition and more.
Your other ‘go-to’ should be your accountant. If you’re working with the right one, they can work with you to develop the right targets, and set your goal at a level appropriate to your business based on what your competition is doing.
Your accountant can also help you with the next trick – creating systems to measure quickly and painlessly the things you need to keep score of. These systems might include your accounting system (we recommend Xero), and customer surveys asking every customer how they heard of you. So long as measurement is easy you’ll do it more often, and if you’re doing it more often you’ll hold yourself accountable to your targets.
To really get your business humming, the first step is to figure out what succeeding is to you. From there you need to set high yet achievable targets to aim for. This, with a good system for keeping score will help you get your business humming and keep your performance on track.