How healthy are you? Don’t Check Your Gut!
Did you do a gut check about how you’re feeling to answer that question? If yes, your answer is probably wrong – or at least short sighted. You may feel great but have high blood pressure, be prediabetic, or have some other asymptomatic condition. Or you may feel terrible because of a bad night’s sleep, seasonal allergies, or bad food; not poor health.
To assess your actual health, you need to measure a small handful of indicators. The relevant ones differ by age, condition, and other things. I won’t presume to be an expert on what you should track. This is not twitter, after all.
The same is true for your company. How you feel about things is probably not indicative of the true state of affairs. I’m more of an expert here than I am on medicine but I still hesitate to give one-size-fits all advice. But I can give some guidelines.
Your KPIs are not the same as Company Health
KPI stands for Key Performance Indicator. Just like your ability to perform a certain number of pushups is related to but not the same as your physical health, the same is true of company KPIs. They indicate short term performance not health.
Instead, you need a small list of metrics that can be regularly and easily tracked. Limit the list to between 4 and 8 things so that you can grasp the over-all situation easily and also notice trends. It should include some leading as well as lagging indicators. Financial reports are always lagging indicators. Projections, work in progress, and deals in the pipeline are leading indicators. These are valuable only if the data on which they’re based are accurate.
Here are some suggestions along with my comments. Pick a handful that makes sense in your situation. Whatever is on your list should be measured consistently in the same way. Monthly is the right cadence for most of these.
13-week cash flow projection. Everyone should have this. Calculate it weekly.
12-month cash flow projection. Do it monthly. Most important for seasonal businesses.
Months of Runway. Pre-revenue startups should use this because they can’t predict revenue but can control burn rate.
Deals in the sales pipeline. Don’t depend on your CRM’s calculation that uses value of the opportunity times the % probability of close. Unless you run a very large company with a very consistent sales cycle your data is useless for projections. Instead, if you can trust the segmenting of your sales pipeline by stages that are objective and mutually exclusive (something I recommend), pick one or maybe two stages and just track the number of deals at that stage.
Discounts given. Either dollars or percent. Changes in this trend will alert you to changes in the market, alteration in or your ability to sell, or pricing mismatches.
Profit ($) or Gross Margin (%). Use a trailing 6 or trailing 12-month number depending on the length of your sales cycle.
Employee Retention. This gives a reflection on cultural fit and morale since it’s a common but true saying that people quit managers, not companies.
Gaps in the team. No need to track every open position, but the critical ones; especially gaps in the leadership team.
Actuals compared to plan (or budget). I like plan rather than budget because it’s more comprehensive and forces you to get your plan out of storage. You do that right? But if you have a good zero-based budgeting process you could use that in a pinch.
Compliance Issues. If regulatory compliance is significant, you’ll want to track the number and severity of issues. And they should be decreasing.
Production Errors or Waste. Useful for determining how good you are on fulfillment. Refunds or returns might be a proxy here.
Utilization Rate. If you bill customers for employee’s time, you want to know what % of their time is non-billable. Service companies that don’t bill for people’s time usually set prices based on expectations of time spent. Some way to track this against reality is necessary even if you don’t bill that way.
WIP Inventory. How much of your money is tied up in work-in-progress? Is this number getting better or worse?
What Else? Let me know which metrics you use that I didn’t mention.
If you’d like a session to develop your health metrics, let’s put it on the calendar. It’s free at https://john-3.youcanbook.me/