Your Business Metrics
Our topic this month deals with the health of your business. What are the vital signs for your business? When you visit your family practitioner, there is a routine. Weight, blood pressure, heart rate and temperature are the basic vital signs. On your chart is a list of all your other visits and your prior vital signs. When doctor grabs your chart, he already has an idea whether you are healthy or not.
What are the vitals or metrics of your business? Metrics are the hard numbers you measure on a daily, weekly and monthly basis. Comparing these with prior periods helps gauge your progress. These could include, among others, the number of clients who visit your business, number of sales made, sales revenue, ratio of visits (prospects) turned into customers, etc.
Conversion Rate Metrics
The later is called the conversion rate. That is, if 50 people visit your business and 10 become customers, you have a 20% conversion rate. If you are measuring your activities, then you should monitor this conversion rate and attempt to improve it. This is not unlike lowering your blood pressure. In fact, improving your conversion rate will increase your revenue without spending much except on training. Imagine the improvement this will give your own blood pressure!
Prospect Marketing is Expensive
Most business owners focus on driving prospects into their establishment. This is the most expensive thing to do as it involves paying for advertisements,direct mail, radio and the creative costs. Don’t misunderstand. You need to have a plan for gaining prospects. However, bringing prospects into a business that does not understand its metrics, especially its conversion rate, is an unhealthy waste of money.
Restaurant Metrics
Suppose you are running a restaurant and your profit is in food. The ability of the wait staff to convert guests into buying after dinner add-ons is critical to your bottom line. So you set up some parameters for desserts. The first three weeks you chart the number of meals served with and without desserts. This gives you a base line for measuring. Now you test a new tactic. Maybe it’s giving your staff some basic training in presentation of the dessert menu, suggesting certain desserts, or simply asking a probing question.
How many times have waiters said, “would you like dessert?” While at it, why not just ask “would you like an additional 750 calories tonight?” It’s probably about as ineffective. Would it be better to ask, “does anyone at this table like chocolate?” Not many people will say no. Then he can start his mouthwatering description of the type of chocolate used in a certain dessert, how it is served, and how wonderful it tastes. In fact, it is even better with a cup of espresso.
So you can now measure the effect of this test. You made one change, so see how effective it is at improving your conversion rate for desserts.
Put Your Business Metrics in Writing
Now, back to the health of your business. You can only know how healthy your business is if you have your metrics (vital signs) in writing and you measure against them regularly. Is the conversion rate 20% or has changed? How many transactions do my customers make in a measured period such as every three months. Is it better or worse? How fast is the stock turning versus the same period a year before? What is the response rate to my latest ad? Is my average dollar sale per transaction improving?
Find the metrics of your business, measure them at regular intervals, and then test new strategies. Measuring the results is like lowering a temperature with drugs, improving your heart rate with activity, etc. You are flying blind without an instrument panel if you do not measure key aspects of your business.
The next time you visit your doctor, remember he is lost without his metrics. Don’t be lost in your business. Get healthy and set up your metrics this week! Then measure them often.
Call Jim for help setting up your business metrics at 888-820-3466
