Written by: Corey Harris & Julie Traxler, Executive Contributor
Executive Contributors at Brainz Magazine are handpicked and invited to contribute because of their knowledge and valuable insight within their area of expertise.
The only way to effectively and efficiently run your business is to manage by the numbers because the numbers never lie. Managing by the numbers helps keep leadership focused on the big picture, the strategy of the business while allowing the team to work on the details and execute on the strategy. This method helps prevent micromanaging and gives leadership the ability to read into trends to become more proactive with strategic decision-making.
Knowing the numbers gives you unbiased information about your business if measured, tracked, and analyzed correctly. But like any information, improperly collected or analyzed data can be misleading. When setting up a dashboard or any kind of tracking tool, be sure to follow a few rules.
Tips
Be specific about what you’re measuring and why. A quick definition is helpful and can explain the need for the metric. There’s no sense in measuring just to measure, so only track those that make the most sense.
Create the easiest way possible to calculate and track the numbers. If it takes more time to collect the data than it does to review and analyze, you’re probably doing something wrong. Automated reporting is your best friend here.
Consistency is key to identifying opportunities and problems, so be sure to track and calculate your numbers the same way every time. Consistent review is just as important, but you may not need to look at every metric or KPI every time. Some need to be reviewed throughout the day, while others can be reviewed weekly or even quarterly. Consider this in your definition of each.
Remove emotion from your analysis. It’s easy to make excuses for why a metric is the way it is or hand-pick numbers that support the decisions you want to make. Numbers don’t lie unless you manipulate them.
There is still a human element to utilizing the data that needs to be included. Numbers only show history, and many factors can affect them that aren’t accounted for, so you’ll need to make some assumptions on what the numbers say and how to use them. Accurate numbers combined with your knowledge and experience are a powerful tool in business.
Definitions
KPI — Key Performance Indicators are the high-level numbers that give an idea of the overall health of the company. As the name suggests, they help indicate the direction that the business is going in that particular area. Alone, they can’t provide much guidance in determining what’s working well or not, but they give you the ability to quickly scan how well your business is performing. KPIs are made up of metrics, and the metrics contain the details that drive your business. Tracked KPIs are rarely changed, added, or removed from a dashboard.
Examples: Revenue, Cost of Goods Sold, Labor Cost
Metric — A metric is a measurement of one very specific area in a business. It can be influenced or connected to other metrics, but it’s also possible for these to act independently. All metrics drive the KPIs of a business, and metrics are where incremental changes can be made to impact the bottom line. Metrics are tactical in nature, and small changes can have big impacts on them. Metrics are often used to create goals for the team as they generally reside within the realm of one department or single person. Metrics can be tracked in both the long and short term.
Examples: Number of sign-ups for a promotion, social media followers, number of vendor orders placed per month, average customer order size
Goals — These are tangible, easy-to-track metrics that individual and team performance can be based upon. The same goals can be used month over month, or they can be short-term when linked to certain projects or campaigns. Goals should be challenging but attainable, and the person responsible should be involved in the goal-setting process. When a team member helps set their own goals, there is ownership in achieving them because they’ve agreed that they’re realistic. Goals shouldn’t be adjusted, but anything that impacts the goal along the way should be well documented. Most importantly, the team member should be fully aware of how they can positively or negatively impact the goal.
Examples: Sales percentage increase, total defects, social media followers
Strategic vs. Tactical — When it comes to business, think about it as you would a sports team. Strategy: Leadership exists at the ownership/management level down to the coaches on the field. They work on drafting/recruiting new players and set them up with the right people to get trained and acquainted with the team. They create the plans for the team for the season, research the opposition, and direct everyone on what to do for each game. They don’t participate in the game, but they have both indirect and direct impacts upon. Once the game starts, they can’t effectively make changes themselves, but they can guide what to do next or how to respond to something that occurred. Tactical: These are the players on the field. The captains lead the team and direct individual plays and movements. Each player is responsible for their own movements and how they react during gameplay depends on their ability, what direction they were given, and the training they’ve had. Tactical plays can have a big or no impact on the game's outcome, but it’s up to the players alone to make those plays. When coaches or management gets involved in the minutia of the game, things can go bad quickly.
Examples: Strategic decisions include the plan for launching a new marketing campaign at a particular demographic. This would include the budget, timeline, and goals. Tactical decisions take the strategy and interpret/implement them based on skillset, available resources, and the method to reach the demographic. This includes content/copy, budget allocation, and regular review/tweaks to the campaign to improve the reach.
Trends vs. Fads — When it comes to numbers, two types need to be considered. Trends occur over long periods of time or are cyclical, while fads are more short-term. Fads can become trends, but trends can’t become fads. The difference is fairly subjective, but if it’s something that can be measured and analyzed month over month or annually, it’s a trend.
Examples: Trends - sales cycles, social media interaction. Fads - limited-time offerings, specific social media hashtags, a sudden spike in sales
Reading the numbers — Generally speaking, leadership should not review metrics regularly as those are what the team procures and acts upon daily. Though, reviewing KPIs can lead to an investigation into metrics to determine what’s causing anomalies in the numbers and trends.
Examples: An increase in labor cost percentage could be the result of an increase in overtime hours. The cause of the overtime hours could be for many justifiable reasons. If your team is short-handed and people have to work late to make up for it, leadership should focus on giving the team the tools and direction they need to correct the problem (additional resources, recruiting tools, new goals) rather than getting involved with the management of the problem (scheduling, hiring/firing).
Spending the time and money to set your business up to be data-centric will quickly pay for itself down the line. Stop guessing at what to do with your business and start making informed decisions.
Connect with Julie and Corey on their LinkedIn, Instagram, Facebook, or Twitter or visit their website.
Julie Traxler and Corey Harris, Executive Contributors Brainz Magazine
Julie and Corey started their company, SB PACE, due to the 2020 pandemic to assist small businesses. Since then, they have expanded into helping start-ups, companies looking to improve, and small business mergers and acquisitions. They wrote the book on small business disaster preparedness and continued to help small businesses by leveraging their knowledge and experience working for Fortune 500 companies and Big Four consulting firms. Julie and Corey are the experts small business owners turn to when looking for sustainable, long-term success.
