Be honest – are you good at monitoring your own performance?
That is, do you have a trackable, measurable, adjustable way of assessing your own productivity?
While you’re required to regularly review your employee’s performances, no one will monitor your own performance except you. (And if you can’t do it yourself, you need to be meeting with a professional such as a business coach, who can help.)
If you’re not being as productive as you could be, you’re losing money – it’s really that simple.
Plus, setting targets and goals for yourself will give you motivation to achieve them and a sense of accomplishment when you do, which will ultimately push your business forward.
Here are 4 different ways you can measure your performance:
1. Monitor your gross profit margin
If you’re a small business, your gross profit margin will be smaller than a larger business. We’ve seen large firms with gross profits up to 65%, with some smaller firms down around 35% (the average would be around 55%). Your ideal gross profit margin depends on your industry and your business size.
Generally, a higher gross profit margin will indicate a more efficient business, and show that a business is able to make reasonable profits. A number of factors will influence your target profit margin; for example, your production costs, pricing, and cost structure.
2. Measure the number of days you take off
You may not want to measure the success of your business by your gross profit margin, but instead on your lifestyle; namely, your work/life balance. If you’d prefer to use this to monitor your performance, track the number of days you take off.
3. Measure customer satisfaction
Customer satisfaction can be measured in a number of ways:
- Number of repeat customers you get per month
- Number of referrals you get from existing customers per month
- Number of positive (and negative) reviews you get on Google, your Facebook page, etc.
If measuring customer satisfaction is how you want to monitor your performance, you’ll need to measure all three of these.
4. Keep tabs on your cashflow
There are a few ways you could measure this (I’d suggest doing both):
- Keep a cash flow graph. For each month, record your money in subtracted by your money out, and plot it on a graph. You can also make projections based on expected payment dates and future expenses.
- Make notes of how easily you’re able to pay wages and creditors – count the number of times you go into overdraft each month, or calculate the average time it takes people to pay you.
You might realize that your cash flow is suffering because it takes people 35 days on average to pay you and throws out your expected income. Once you’ve pinpointed this, you can set a target for this metric, and see how this affects your cash flow. Say you decide you want to bring your average payment time down to 30 days, so you introduce a new policy to charge interest on all payments after 14 days of invoice.
Need help setting your targets or choosing your performance metrics?
Here are some resources to get you started:
- The IRD provide statistics for certain industries, so you can see what your industry ‘norms’ are
- Statistics New Zealand has a few tools to help you compare your business to your competition and understand your customers
For further help, talk to your accountant or business coach. They will be able to help you choose metrics and targets that best suit you and your business, and set you on the right track.
Plus, you’ll learn how to create systems and process to measure your metrics easily and efficiently (without spending hours finding data and creating reports!). For example, having real-time dashboards will give you a sense of where you are in relation to your targets. Having this kind of data at your fingertips every day will keep you accountable—trust me, it’s actually kind of addictive—and will get your business humming.