BUSINESS HOW-TO
START TOTRACKTHESEKEY PERFORMANCE INDICATORS IN YOURBUSINESS TODAY!
tells you if your business is growing or dying far better than your sales numbers do. You should have a full understanding of your business’s churn number and churn points. PIPELINE REVENUE – This is used for anyone who gives a quote and closes business in the future. Pipeline revenue is the total sales volume you’d have if you won each and every piece of business you quoted over a given period of time. I look to the pipeline revenue number as a leading indicator of future sales. For example, if we need to produce $100K in new pipeline revenue to close $30K in sales the following month, and 20 days into the month we’re at $54K in new pipeline revenue when we should be at $67K, we better change something fast or we will not hit our goal in this month and likely not in the coming month, either. AVERAGE ANNUAL REVENUE PER EMPLOYEE – This is a great number to track. If I know your sales number and number of employees, I can do some simple math to get revenue per employee and know how healthy your company is or is not. Most companies over a million dollars in revenue will have a minimum of $100K in revenue per employee. It is not uncommon to see small businesses with $125K, $150K, or $200K-plus, depending on the industry. Most Fortune 500 companies have a minimum of $500K in revenue per employee. The more revenue per employee, the more effective your business is at maximizing its greatest resource — the people who work there. This number can skew down a bit if you are in a stage in your business where you’re growing fast and hiring a lot of people. If you’re not in that stage and you find your revenue per employee at under $100K, you are likely very overstaffed or the business is going to struggle to ever turn a good profit and maybe even survive, in most cases. Personally, I track churn and pipeline revenue weekly and average annual revenue per employee monthly. Armed with these numbers, you will be in a much better spot to be proactive in your business, as you can solve minor problems before they ruin your month, quarter, or year.
churn number, but after asking a few questions, I found out that they had 24-month contracts and had been in business for 22 months. To add insult to injury, they had 28 total customers. The number alone appeared great, but with a little digging, it was easily discovered that the churn number didn’t tell the whole story. Remember, these are your numbers, and the only person you hurt by not being real and honest on these numbers is yourself. CHURN – I talk about this one all the time. But you need to know how many customers leave your business on any given month. This is the minimum amount you need to get in the following month just to break even. By tracking this number weekly and monthly, you’ll start to see patterns of when customers leave, and then you can take proactive steps to reduce your churn. You can also more easily find holes in your systems and processes when you know this number. Your churn number
Have you ever wondered, “What should I really be tracking in my business? What numbers actually have actionable value, compared to numbers that are simply good to know?” Below is a list of KPIs (key performance indicators) that I track daily, weekly, or monthly, and you likely should be tracking them as well. Of course, not all numbers relate to all industries, so if you run across one that is not something you can track, either find your industry’s equivalent or skip that one. If you can track it in your industry and simply are being lazy, that would not be good. Another important note is this: Numbers are only good if they are valid and real. You need to double-check your math. For example, if you have a 10% customer churn number, and you don’t actively do anything to reduce churn, there is a good chance your math is off. Also, sometimes too good of a number isn’t great. For example, I did have someone boast to me about their 10%
–Shaun
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