Key Results - How Well Are You Doing?

Copyright 2008 by Charles R. Schaul, Boulder, CO. All rights reserved.

Other than Sales and Profit, do you know how you’re doing in your business? How often do you get the information? How long after the fact? Do you know how your business performed last week?

The old adage in business is, “what you measure is what you get.” For one company the only report regularly prepared was the monthly financial statement. Don’t get me wrong, financial statements are fine, and provide lots of information about your company’s finances. But there’s much, much more to operating a business than finances. The financial statement is the “report card” that gives you a grade. High profit is an “A”, severe loss an “F”.

The big problem with financial statements is that they don’t give you much information about operations performance. They don’t tell you that deep down in your company something is amiss, or that somewhere else in your company something is going well.

One retailer’s financial statement showed gross profit was going down. Total sales were growing rapidly, but margin lagging. Monthly sales data, available three weeks after the end of the month, showed too late that the product mix was changing -- declining sales of high margin products and increasing sales of low margin products. Finally recognizing the problem, management moved into high gear with a program to improve overall gross margin through advertising, promotion and store merchandising changes.

The program included a weekly report. It shows high margin product sales as a percent of total sales. As a result of management efforts the percentage increased. Then it stopped improving. So more changes were made, and the percentage took another step up. In time, and after many revisions to the program, it reached the desired target. The report showed management how they were doing each week, and measured the result of each change. Eventually the monthly financial statement gave management an “A” for gross margin!

In this example, increased ratio of sales of high margin products was a KEY RESULT the company sought. The weekly report was a KEY RESULT REPORT.

Another example -- one company tied together employee training and key results reporting. Sales personnel were trained to recognize “related sales” opportunities, and to ask for the order. The key result measure of averages sales dollar per invoice showed the result. In this case, focusing attention and training on a specific area, and then measuring and reporting the results, produced the desired result while showing the effectiveness of the training.

What are other key results? Think about it -- what are the things that happen in your business that are most important to your business operating well? Here are some that show up in many companies.

• Revenue and profit (naturally)
  
• New leads (measures the effectiveness of advertising and promotion, or word of mouth)
  
• Number of new customers (measures the ability to convert prospects to customers)
  
• Labor hours per transaction or other service operation
  
• Dollars per transaction (Are our people selling or just taking orders?)
  
• Revenue per labor hour (great measure for all businesses -- retail, distribution, manufacturing and service)
• Employee turnover (the trend is an important indicator of employee satisfaction and hiring effectiveness)
  
• Inventory level and turns (low turns mean too much inventory)
  
• Lost sales (high lost sales means too little inventory)
  
• Labor efficiency (hours billed versus hours paid)

So, there’s good reason for saying, “what you measure is what you get.” Think about it. Do you know if you’re getting the results you want, or does your report card give you a “C”? Implement key results reporting. You’ll be amazed at how easy it is to get an “A”.

Charles R. Schaul, Partner of SixPillars Research Group, focuses on increasing business profits by resolving the problem of customer attrition. Aligning companies with their customers; generating and implementing strategic initiatives; and promoting employees’ customer focus through commitment, responsibility and accountability combine to achieve the result.