Even the best Tarot Card readers have trouble predicting the future, and business owners aren’t often known as world-class prognosticators. However, diligently recording data and performance can tell us a lot about what our bottom lines will look like at the end of the month. We call the most telling data key indicators.
In the financial world, key indicators, sometimes known as leading indicators, are some of the most important pieces of information the government and investors use to predict what is going to happen in the economy.
What are leading indicators? Simply put, leading indicators are shifts that we can measure that tell us something about the market, such as changes in the number of people employed, the number of building permits governments offer, number of claims, and so on. The government makes decisions about when to raise interest rates based on these benchmarks. Why? They provide more insight on the economy’s performance than simply watching the stock market.
As business owners, we can measure key indicators within our own companies to help make decisions about ways to shift strategies and improve our bottoms lines. The best way to make decisions about how to run business is to keep meticulous records and go over the numbers. Profits at the end of the month certainly tell us something about how well we are doing business, but we can get more insight—and sooner!—by going over data as it comes in. By the end of the month, it’s too late!
In the words of small-business coach Michael Gerber, “you can’t manage what you can’t measure.”
If your business relies primarily on sales, you can come to all sorts of conclusions about your performance by keeping track of simple data such as the number of incoming phone calls, the number of meetings, the number of proposals, and the number of sales resulting from different methods of reaching customers.
Like any goal or benchmark, a key indicator has to be tangible and quantifiable. For example, you might consider measuring turnover rate when sales staff uses a certain method to gain customers. From there you can start making guesses about customer assumptions and expectations. If the sales staff is finding success in certain methods, but the rest of the staff struggles to retain customers, you can start adjusting your strategy to keep people onboard.
That’s just an example, of course. Your key indicators will be unique to your brand and your field. But they are important because they make adjusting your strategy and moving in different directions feel less like shooting in the dark.
The great thing about key indicators is that you can use them to change the output, and the results, before the end of the month. After all, it’s better to change course sooner than later.
Data keeping is a meticulous, time-consuming process, but it gives you a much better feel for your success than profit and loss statements and delayed performance indicators.