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David FullerI’m getting slower, there’s no doubt about it.

I have been keeping track of my cycling times for the same routes for over five years and each year my times are slower. Since I turned 50, five seasons ago, my climbing is slower by a minute or two for the same hills, and my times on the longer distances is measurably more sluggish.

However, there are other areas in my life where improvements are happening. I’m taking more days off to spend with my family, I’m exercising more and I’m connecting with more clients.

This week I was working with several clients who aren’t measuring as much as they should. Their idea of business measurement is how much money they have in their bank account. While this is important, it’s like measuring how many cookies are left in the jar without having a clear understanding of what it takes to make a cookie, how many are in a batch and when the next batch is going to be made.

Measuring is important for a number of reasons:

  • it gives us perspective about our progress compared to a similar previous period;
  • it allows us to use targets to motivate and educate our employees;
  • we have something to celebrate if our numbers improve;
  • measuring helps us determine when we need to change our strategies.

So what should we be measuring?

Every industry differs, but there are certain key measurements that every management team would benefit from measuring:

How are we doing compared to the same period last year?

Whether we’re measuring our production, our sales, the number of people we’ve reached or our donations if we’re a non-profit, they must be compared with the same period last year. This gives us a clear idea about our business trend.

Is our performance acceptable considering the economy, trends and changes in our industry?

What’s our average sale?

In retail, this is a common key performance indicator (KPI). However, in every industry we should be looking at the average sale of our business.

Comparing against our previous year and industry benchmarks gives us an idea of our potential for growth with our current customer base, and indicates the trend for our business year over year with our customers.

If you don’t know your industry benchmark, ask the owners of similar businesses in other communities. Not only will you get a better understanding of your business but you might be surprised about how you compare with other similar businesses.

Gross margin

Our gross margin is the difference between our selling price and the cost of our goods or services. Every industry has its own standards but getting clarity on what yours is and knowing what it should be will allow you to make the changes needed to ensure profitability.

Net profit

How much money are you making at the end of each month, quarter and year?

If you’re running a business, you’ll want to measure this compared to your previous years, but also have a clear understanding of the expected rate of return for your particular type of business.

Without making a profit, you can’t hire and pay employees, pay back loans on investment or create a profitable business that you can sell when you retire.

Other key measurements might include return on your marketing investments, the number of referrals you get on a regular basis, your bid success rate, your production per employee hour, your basket size, percentage of vacancies, or whatever is going to be significant and meaningful to you and your staff.

Unless we measure, we don’t honestly know how we’re doing or what’s changing as a result of our efforts.

Most small organizations don’t measure enough while many large organizations probably measure too much.

Measurement can make a difference, although while I might measure my cycling times, I’m not measuring my weight or my consumption of chocolate, which may have increased.

However, like different aspects of business, some things are better left unmeasured.

Troy Media columnist David Fuller, MBA, is a certified professional business coach and author who helps business leaders ensure that their companies are successful. David is author of the book Profit Yourself Healthy. Email dave@profityourselfhealthy.com

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