PPPlease track your key performance indicators

Sometimes in life you just need to put on your blinders and keep on keeping on no matter what happens. Running a business will NEVER be one of those times, unless you enjoy those moments while driving when you go on mental autopilot just long enough to blow past your destination, then snap-to and wonder how you got there.

Markets shift. Capabilities evolve. Resources change. Crazy stuff happens. And the only way you’ll know how to go forward is to look back. To do that effectively, you must track key profit indicators. Which ones, you ask? Read on.

1. Persist: keep doing what you’re doing because the dip is temporary and/or expected.
2. Pivot: change what you’re doing because things aren’t going as expected.
3. Pause: stop what you’re doing because the data says it’s not salvageable right now.

Your choice of action could bring in the bucks or end up being one of those costly mistakes you regret. So you want to get it right. Here’s what to track to help make that happen.

Why it matters:

Let’s say you’re seeing a dip in new contracts. You look back at the number of new contracts you had during that month the previous year and see the same dip. Now you know it’s a natural cycle and that you should persist. Or you look back and don’t see a lull, so you know you need to either pivot or pause, based on other indicators.

Why it matters:

It’s seven times more expensive to land a new client than to sell to past or existing clients who already think you’re awesome and worth every penny. Of course, if you’re just starting out, the scales will tip toward new. But the longer you’ve been doing what you do best, the more you should be able to check the “repeat” box, which shows greater lifetime value per client. If you’re not seeing that balance shift, you’ll know there’s an issue with your revenue generation process that needs your attention.

Why it matters:

Good referral sources are gold, and they need to be nurtured (that’s code for “compensated”) to encourage them to help keep the good times rolling. For most small businesses, the vast majority of your income will come from someone who knows you personally and/or someone who found you through someone who knows you (and knows how incredible you are). You can also track how/where you’re attracting those who don’t know you or anyone you know, so you can leverage more of what’s working for you (such as social media).

Why it matters:

If you’re reaching the target you intended, great. Keep it up. But tracking target markets may show that you’re attracting a target you weren’t aware of. If you start seeing that target gaining traction, you can consider shifting your focus away from an intended target that’s not bringing in as much revenue.

Why it matters:

This one’s simple. See what’s selling and do more of that and less of the other stuff.

Why it matters:

Ideally, your repeat clients are moving from one level to the next in your sales funnel—from initial buy-in, mid-level buy-in, high-level buy-in, maintenance level buy-in, and finally retention buy-in. Some clients start at the top and won’t drop down, but if you’ve built a strong purchasing funnel, you’ll catch them at retention. If you don’t, you’ll know something is broken.

Why it matters:

The faster you close and complete projects, the faster you see dollars in your account. If you don’t pay attention to how many days it takes to fulfill contracts, you may not realize when your profitability slips. When you track start and end dates, you can see if, for example, a contract that used to wrap up in one month has started taking three months to complete, through no fault of your own (in other words, the client has started sandbagging). If that’s the case, you can add time parameters to that client’s contract, then revisit the data to see if that solved the issue. If not, you’ll know to up the price tag because, you know, time is money.

Why it matters:

This tells you if you’re consistently underbidding, leading to unwelcome surprises for your clients, or consistently overbidding, leading to clients consistently paying less than you anticipated. With that data, you can raise or lower your prices accordingly.

Why it matters:

Cost of sales includes any costs incurred to fulfill the contract, which should include software, hardware, travel, etc. Cost of labor includes anyone you pay to help fulfill a contract, excluding yourself. If either cost goes up, you’ll be able to evaluate whether your pricing should too.

Why it matters:

Because … money. Net income is the total amount billed minus cost of sales and cost of labor. That shows your percentage of gross profit, and as in most things profit—the higher the better!

Why it matters:

Because time is money. This includes behind-the-scenes time as well as client-facing time. You need to calculate and track both to make sure you’re not leaking profit because you’re leaking time.

Why it matters:

These show you what you earned, what you needed to earn, and what you want to earn. That’s how you’ll know what’s a good offering and what just doesn’t make financial sense. It’s worth noting that when you know your breakeven earning number, you’re less likely to get bullied into negotiating a price that’s too low—which women are 17x more likely to experience than men. Come on, ladies, hold the line. When you know your numbers, you’re in a better position to either defend your price or pivot to something that makes more sense financially.

Why it matters:

Listen, there are clients who make our jobs fun and rewarding (even if there’s an unforeseen hiccup here and there) and there are clients who make every moment of a contract a waking nightmare. It’s perfectly fine to mark the latter as a “no way,” or as a “maybe, IF” (there’s new leadership, for example). This will stop you from forgetting the pain over time and taking on another contract that you’ll regret … again.

Historical data is an essential tool to help you make real-time decisions and set realistic growth expectations. I’ll say it again: REALISTIC growth expectations. Rome wasn’t built a day after discovering the wheel (yes, I tweaked the saying a little bit). I’m not telling you to aim low. I’m showing you how to effectively hit the target you’re aiming for.

Set yourself up to know what to do and when. Get access to our KPI indicators tracking worksheet and video that explains step-by-step how to customize it for your business.