Measuring Your Key Performance Indicators
August 11, 2010
I have a friend that owns thirty businesses, all over the world. I asked him how he was able to monitor all those businesses and how he spent his workdays. His answer was that he regularly looked at their key performance indicators.
I have a friend that owns thirty businesses, including steel mills and plastic factories all over the world. I asked him how he was able to monitor all those businesses and how he spent his workdays. His answer was that he regularly looked at their key performance indicators. The businesses that were doing well he left alone and the ones that had poor performing Key Performance Indicators (KPIs), he contacted and became involved.
If you have a business that you want to become turn-key, your goal ought to be that you will look at the business’s KPIs and if things look good, you don’t mess with it. If the indicators tell you otherwise, you step into the action.
How do you get to that position and what are your business’s KPIs? To get there takes planning, great people, hard work, systems and successful marketing. This article will not address those issues but we will take a look at what are your KPIs? Key Performance Indicators reflect the success of a business through quantifiable measurements. They are not only financial numbers but operational statistics that show the health of your business. There are five aspects to the KPIs.
- They are clearly defined
- They have strategic methods for their achievement (drivers).
- They are measurable
- They are analyzed and
- Action is taken when necessary
In my business the KPIs are broken down into four different categories: Operational, Office, Marketing and Owner. You can develop yours any way you want but remember they must be clearly defined and measurable. They can be looked at as often as you like. I look at ours at the beginning of each month and go over them with our managerial staff.
Listed below is an example of our KPIs. Take a look and then make your own list using some of the items listed here and then customizing it to suit your unique business.
- Upsell carpet protector
- Upsell sanitizer
- Upsell upholstery
- Upsell tile
- Upsell Oriental rugs
- Upsell drapery cleaning
- Upsell wood floor cleaning
- Upsell maintenance agreement
- Total upsells in sales/ month
- Number of jobs/ month
- Total production in sales / month
- Labor rate %
- Tracking of income sources
- Tracking of calls booked
- Sales for the month/ week compare to previous year(s)
- Net profit / month
- Sales per service category
- Accts payable
- Accts receivable
- Profit and loss statement
- Balance sheet/ Quick Current Ratio, current assets/ current liabilities
- State of cash flow
- Number of redo’s
- Sales manager goals/ month
- Sales manager reports: Visits, calls, cards collected, appts., cards sent
- Mailings monthly/ newsletters, postcards
- Website: Google page rank, other search engine page rankings
- Referral marketing
- Carpet retailers
- Interior designers
- Property managers
- Homeowner associations
- Trade shows
- Networking groups
- Commercial accounts
- Management staff meetings
- Goal setting
- Exit strategy
- 15 year
- 5 year
- 1 year
- Employee evaluations once or twice a year
When people think of KPIs, they usually think about the finances of the business rather than operational issues. I am afraid that most carpet cleaning businesses have no clue when it comes to looking at financial numbers. Therefore, I am going to make a very easy and quick analysis for you.
You need at least two financial reports and these include a monthly profit and loss statement and a balance sheet. The profit and loss statement is usually provided by quick books or some similar accounting program. These days it is not that difficult or expensive to have these programs in your business and you should. A profit and loss statement shows you the income and expenses for the month and tells you whether you made money or not for the month.
Such a report is fine for a short term analysis of your business but it is by no means the entire picture. Your balance sheet will tell you what your company is worth and gives you a much bigger breakdown of the financial status of the business. It lists the assets and liabilities, accounts receivable and payable, current cash accounts, depreciation, long and short term debt including notes payable to financial institutions and shareholders and net worth.
An accountant is usually necessary to develop a balance sheet and the only way you can ever sell your business for a good profit is to have at least three years of sound balance sheet reports. This report tells you more accurately than a profit and loss report whether your business is going in the right direction or not. For instance one of the many reports that you can glean out of it is whether your business is in a good cash position.
The Quick Current Ratio is determined by adding up all your liquid assets, that is, money you can get your hands on quickly such as cash, checking and savings accounts plus your accounts receivable. That total is divided by your accounts payable and all your long and short term debt.
A good cash flow business ought to have at least a 2:1 Quick Current Ratio with current cash available equal to twice the amount of debt load. How does your company rate in this equation? This is very important to know so that you can determine whether you can make certain purchases and ensure that bills can be paid. There are many more ratios that a balance sheet can give you and you should go over these with your accountant.
The operational, office, marketing and owner KPIs are pretty much self explanatory. As you look at them and develop your own, make sure that they are clear, measurable, reported on regularly and acted upon. When you look at these numbers on a routine basis, you will be on your way to a successful business that can allow you the free time that inspired you to start your business in the first place.