5.2. Determine Which Numbers are Important to Your Business

As you cannot control what you do not measure, you need to be doing the necessary measuring. Deciding what is important to you within your business will help to guide you to which numbers you need to be using to make your management decisions (see Chapter 3: Planning Properly). It’s a statement of the obviously really. If you sell books, then knowing how many books you have sold each month is important. If you sell your services, then knowing how many times those services have been delivered and to whom is important.

 

Bear in mind that what’s important to a business will vary with that business, but your focus should be on those activities that can be called ‘achievements’, or accomplishments, or stuff that you’ve got done. You could decide that for your business an achievement would be closing a new deal, increasing month—on—month sales, developing a new product or service, doubling your workforce, etc. It’s up to you.

 

ACHIEVEMENT CATEGORY	WHAT IS IT?	WHY IS IT IMPORTANT?
Heathy cash flow	The rate at which money comes into and goes out of your business in any given time period.	Knowing how much money is coming into and going out of your business each month lets you know whether you’re making money or going out of business.
Plenty of cash at the bank	The amount of money that is in your business account at any one point in time.	Knowing that you have enough money to pay everyone’s salary at the end of the month will help you sleep at night, oh, and avoid a riot amongst your personnel.
Acceptable cost of production	The amount that it actually costs to produce your goods and provide your services.	If your goods and services cost more to produce that you can sell them for, then your business model is unsustainable
Minimal costs to make a sale	The amount that it costs to tell your potential customers that you have something that they might like to buy and then convincing them to buy it.	If you are spending more on marketing than you are getting back in sales, then there is something amiss.
High customer satisfaction	Have you made your customer happy enough to buy from you again, or recommend you to someone else? Or will you never see them again and have they told everyone on social media how rubbish you are?	Has the money you spent on making the first sale bought you their loyalty or do you have to spend that money each time?

Table 5.2: Achievements that most business should be measuring

Table 5.2 (cf. Table 5.1), lists a few loosely defined achievements to which most businesses should be paying attention. You’ll notice that the first column (Achievement Category) includes a qualifier, i.e., healthy, plenty, acceptable, etc., with each category These words are stand—ins for numerical terms and are deliberately vague for this example as it is up to you to define the value of each one yourself. What we’re doing here is giving loose targets against which we can compare values. Nothing like a proper SMART target (see Chapter 4: Getting Stuff Done), but it is fine for our purposes here.

Now, think about what values you’d put in for the qualifiers. What, to you, does healthy, plenty, acceptable, etc., mean? To help you do that, here are a couple of examples. To the local butcher, £10,000 in cash at the bank might be ‘plenty’, but that probably isn’t true if the business is an accountants with 20 personnel, 500 customers and a turnover of c. £1 million a year. Cars cost thousands of pounds to manufacture, but if that was the cost of producing a book, you might not sell many copies. Deciding what you want the numbers on your dashboard to be reading is one of the things that you must plan (see previous chapters), so for now we’ll stay focussed on deciding what it is that you need to be looking at within your business and how to get those numbers onto your dashboard.

‘Fast’ to you might not have the same meaning as ‘fast’ to your customers; define your terms.

Why is having all these numbers on your dashboard important? Well, not paying attention to the basic achievement categories in Table 5.2 would put any business in real danger of failure. Look at each one and just have a little think about your own business. What do you think would be likely to happen if you never bothered to look at how much money you were making or, more to the point, losing? Sure, whilst you’re making money, you’ll be fine, but if you suddenly start to lose money how are you going to know? Oh, you’ll know you’ve got no money come the end of the month when the salaries and bills need paying, but then you’re on the slippery slope to failure and it may be too late.

 

So, decide which achievements are the most important to you and determine how to assign them a number. Now, in order to do that efficiently you have to set up and embed the systems necessary to allow that number to be assigned. It’s all very well deciding that measuring your wastage is a good idea (it is, do it), but it’s how you are going to do it that’ll make the difference between it happening and it being ‘forgotten’. In the next chapter, I’ll present an example (based on real life experience) of what can happen when you decide to measure something and then stop as your resources are being pulled in another direction.

 

Within the management steering wheel, the ‘N’ in TINA stands for the word numbering, and, as stated previously, that this is a catch all term used to cover monitoring and measurement. The former, I’ve defined as keeping an eye on something, the latter as assigning a number or value to. However, be aware that something that only requires monitoring in one business may well require measuring in another, and vice versa. So, when you see any of the words ‘numbering’, ‘monitoring’ or ‘measuring’, decide whether that word is the right thing for your business to be doing, and if it isn’t, do something else!

 

As we’ve seen, there are many things to which you could assign a number in your business, but resources are limited so don’t go dashing off to build a dashboard that looks like the cockpit of a passenger jet (see below). Granted, running a business can become more like flying a large aircraft than driving a little car, but we’re looking to survive the first couple of years here, not fly round the world at the first attempt. A few businesses have done that (flying around the world, that is), but they are rare and well—publicised. What you don’t hear about so often are all the individual businesses that rose—up, tried to fly before they could walk, and nosed—dived to failure.

 

Also, be aware that the other side of this numbering coin is realising that you shouldn’t bother gathering numbers for something if you aren’t going to use those numbers. I’m not saying that those numbers might not be useful eventually, but they might not be useful right now. Why not collect the numbers now anyway and store them for a later date? Well, the reason is obvious if you think about it. All resources are limited. In business, our resources include people, time, money, equipment, buildings, vehicles, etc., but none of us have infinite quantities of these. Efficient deployment of resources is critical to your business surviving the early years. If you task someone with measuring something, then it doesn’t matter whether it takes them five minutes or five hours to measure it, they are not producing whilst they are measuring. Gathering numbers is critical, but it has a cost and you must be very certain that you are measuring only those things that are worth the effort.

MEASUREMENT CATEGORY	IMPORTANT TO?	LESS RELEVANT TO?
Size and shape of your customers’ feet	Cobbler, shoe shop, podiatrist	Accountant, butcher, hairdresser
No. of children your customers have	School uniform provider, toy maker, estate agent	Parcel delivery provider, road builder, veterinarian
Customer’s annual household income	Credit provider, mortgage company, luxury goods provider	Street cleaner, swimming baths, grocers
Average spend per customer visit	High street shop, on—line goods and service provider, tourism industry	Transport company, library, musician
Your most popular product / service	Supermarket, car manufacturer, book seller	Driving instructor, window cleaner, landlord

Table 5.3: — Business—specific measurement categories

As mentioned above, there are specific measures that are critical to certain businesses, but are largely useless to others. Table 5.3 lists a few such measures along with some businesses to which they would and would not be relevant. If you are in the process of starting a business, then some of the measurement categories listed might not yet apply to you (you can’t have ‘your most popular goods and services’ if you don’t yet have any goods or services), but they will. Determining what it is important to measure in your business now and review that list as your business grows. What is important at the start of your journey may not be important a year later.

Please don’t drive with your eyes closed.

However, as stated previously, collecting the wrong numbers both wastes time and provides you with the wrong data leading to wrong decisions and increasing the chances that your business will fail within the first few years. And ‘wrong’ here has multiple meanings. Your numbers are ‘wrong’ if they are inaccurate. Thinking that you’ve got £1 million in the bank when you’ve only got £1,000 will be a problem. Your numbers are ‘wrong’ if they are accurate, but not useful. Measuring you customers’ shoe size when you’re selling hats draws your focus away from what you need to be looking at, and diverts your attention towards the less important aspects of your business. You can’t drive the car if you aren’t focussed on the road, so focus on the essentials.

 

Pulling your numbers together in way that makes them available for analysis and evaluation (see Chapter 6: Reading Your Dashboard Correctly) is quite straightforward. There are many ways to ensure that your numbers don’t just get written down and then thrown in a drawer and forgotten about, which is crucial if you are to make the all—important informed decisions that is the primary result of you doing your business thinking (see Chapter 3: Planning Properly).

 

In order to give some structure to your numbering, to standardise what numbers you collect each month (or each time period of your choosing), you can, if you like, use a simple form as your ‘dashboard’ (see Table 5.4). Admittedly, a form doesn’t look like a dashboard, but that isn’t what’s important, the dashboard is a metaphor. What’s important is not so much how it looks (although we will come to that a little later), it’s that it prompts you and your team to collect your numbers in a consistent and regular manner. What you are doing is making sure that the fields on your form (in effect, the dials on your dashboard) are plugged into those parts of your business where those critical numbers are being generated.

 

The measurement categories column in Table 5.4 contains a number of generic categories that should be important for most businesses. Simple stuff like: How many orders have we had this month? How long does it take us to fulfil an order? How much money have we got? You get the idea. What you have to determine is where within your business are those numbers being generated (they must be somewhere) and then ensure that you have a connection from that part of your business to your dashboard. Ask your marketing people for marketing measurements and your operations team about re—work rates in your factory, for example.

GENERIC BOXES LTD — DASHBOARD
CATEGORY	MARCH
No. of enquiries	90
Orders incoming	30
Orders outgoing	50
Order turnaround time	2 weeks
Cash at the bank	£50,000
Customer satisfaction	>75%

Table 5.4: The results of business activities in March for Generic Boxes Ltd

 

Let’s use our friends at Generic Boxes Ltd (GBL) as our example again. Table 5.4 shows GBL’s completed dashboard form for March, listing some of the numbers that they have been tracking. Imagine that you are in charge of their business: What can you determine from the numbers on their dashboard? Well, at a glance, we can surmise (and that is all we can do really with one set of data) the following:

 

 

• They received an average of 4 to 5 enquiries per working day in March.
• Around one third of those enquiries turned into orders within the month.
• They can put out 50 orders a month and are therefore not working at maximum capacity, currently.
• Turnaround time might be good if 2 to 3 weeks is what their customers are expecting.
• They have ready funds at the bank.
• They have three satisfied customers to every unsatisfied one.

Obviously, the conclusions above are based on all sorts of assumptions, e.g., each month’s enquiries are about the same, each order requires the same resources/effort to fulfil, turnaround time is within a month and within customer expectations, etc., but just take them as they are for the time being. How would you steer if GBL was your business? If you are looking at their dashboard and thinking about what and how you can measure similar and additional parameters within your own business, then you’re already increasing the chances that your business will survive the early years.

 

However, you will already be aware using one month’s data at a time is not a good way to run your business. Each set of data is a snapshot of what is happening in your business at that time. To see the ‘story of your business’ you’ve got to ‘run the film’ and that requires there to be many snapshots. You must have multiple sets of numbers in order to analyse them and produce information that has a context. We’ll cover this in the next chapter, but for now let’s look at why something that looks more like a dashboard might be more useful to you and your team.

 

In general, lists are not a great way to present numbers in a visual context. Such lists look exactly like long lists of numbers, which they are, and they are not particularly stimulating or exciting for the reader. Making visual representations interesting means that the numbers within such gain a measure of gloss by association. If you present something that is lacking in interest, in a way that is dull, then people will not be motivated to give those numbers the attention and analysis they deserve (see Chapter 6: Reading Your Dashboard Correctly). And your numbers deserve attention don’t they? It’s why you decided that they must be on your dashboard in the first place.

 

Conversely, if you present your data in a more stimulating way, and it’s not difficult to do with a little forethought, then people feel a greater level of motivation when it comes to studying and analysing those numbers. If you make it easier, then it’ll be done more readily. If the process is fun to do (for any given value of fun!), then people will be more likely to want to do it rather than only doing it under duress. You’ll be dedicating a very large proportion of your waking hours to your business, as will a given number of your team, so making it as much fun as possible will make getting up in the morning considerably easier.

Diagram 5.2 shows what you can do with an injection of fun. The measurement categories and the numbers are the same as in Table 5.4, but instead of a table (a form), we’ve now got something looking more like a dashboard. Instead of numbers in columns we’ve now got dials with readings. Which one makes you feel more like driving the car, er, your business?

 

Obviously, it doesn’t matter whether you are using a list with numbers next to the categories or a more visual representation of a dashboard, as long as you are looking at the right set of numbers at the right frequency. So, having established at the topmost level within your business what numbers you want to be collecting and when, it might be useful to give some thought to whether you would benefit from having different dashboards for different teams or departments within your business, or different dashboards for different times of the year. Remember, that the dashboard is a metaphor and that what you are deciding is which numbers are crucial to the functioning of your business.

 

There are a lot of distractions in business and plenty for everyone to be doing. Everyone can be busy, but not everyone can be efficient. Being busy won’t guarantee your survival, but being efficient will dramatically increase your chances. So, decide where you are going to focus your efforts in your business and determine what numbers you want to be seeing.