How Metrics Help a Business
14th September 2020
When it comes to metrics, I could easily reel off a long list with definitions for you, but in reality that’s not actually very helpful (or that interesting to read!).
Well, because it doesn’t answer the pressing question most business owners have which is, “How do these help me?”
So, instead I’d like to share a client case study with you so you can actually see the positive impact metrics have.
Let me introduce you to Jane
Jane is the Director of a software company. Like most business owners she’s busy all day taking care of her customers and generating new sales and has limited time to deal with what she sees as ‘business admin.’ So, while she thinks the business is doing okay, she often has to act on instinct when she makes decisions because she doesn’t have the right information she needs at her fingertips.
Jane runs her business using desktop-based accounts and, so that she can get some idea of how the business is doing, her team rely a lot on spreadsheets. In fact, an awful lot of time seems to be spent by people taking information from one system or another and combining it in spreadsheets. She also recognises that most of the team don’t really know why they’re tracking the numbers, but just that they were told to by their predecessor.
Jane wants and needs to get a handle on finances. She has an accountant but only hears from them once a year when the company accounts are due. By then, any information she gets from them is out of date. Understandably, Jane feels out of her depth and out of control.
Jane realises that, in order to have a better grasp on the business numbers, things needed to change, so she called us to see if we could help and provide a fresh perspective.
Not your average accountant
Our team started by talking with all of Jane’s key employees. We wanted to understand the processes that were being used to drive the business, as well as understand any frustrations with how things were operating.
We then looked at the systems in place to gather the metrics for each process and suggested moving to an integrated cloud-based technology. This allowed managers to access real-time information whenever they wanted it.
We worked with the management team to help ensure they understood the basics of the reporting they had available. Our regular reviews with the team included things like the difference between cash and profit and how to use KPIs to drive an increase in both areas.
One thing we noticed was that, when Jane and her team wanted to grow or expand, the cash they needed to invest wasn’t available. As a result, they had taken out several business loans. As the same time, several of their customers took quite a long time (and several reminders) to pay their bills. For any business, making the most of existing business assets, rather than increasing liabilities is good practice and for Jane and her team, it was a priority. So, instead of looking for business loans to finance the business, we suggested they measure the days sales outstandingfor debtors and worked to bring that number down by making sure the debts were collected as quickly as possible.
We also looked at the targets and KPIs that were in place. There was a drive from the top to increase sales from £3m to £5m by the end of the year. This was a tough target indeed, with everyone working at fever pitch to support the sales team and get those sales in no matter what!
The problem was, no one was keeping an eye on gross profit or even the margin of each service/product line. So, the sales team were going out and selling the easiest items without thought of margins. Overheads spiralled as well with extra staff being hired to handle customer service. In the end the extra £2m sales cost so much to win that it would have been better to have planned a more realistic sales target linked to profit.
We built a business dashboard so the team could see how they were doing against the sales target but also how the business was doing overall. As a result, Jane and her sales manager decided that they needed to change the incentive system so that they were rewarding the sales team for their contribution to profit rather than just the sales target.
Putting your finger on the pulse of your business
What you can see from this case study is how a few key metrics can really make a difference to how a business operates and the decisions they make. Jane and her team now know how every new order contributes to their success and, by working to bring in payment for their sales in good time, have cash in the bank for the next phase of their growth.
If you’d like to have a chat with us about how we can set up the performance metrics for your business and help your business make better decisions contact us now.