What are your metrics for business success? I attended a non-profit board meeting this past week where the directors were working through this question - "How do we measure success?"
A common metric that was discussed was # of volunteers in the organization in ___ years. Although this metric does measure growth, it does not measure the quality of growth. What if the volunteers are under committed, under trained or just plain lousy at their job? You may meet your metric but find that your organization is under serving the community, or worse, frowned upon by the community it is trying to serve.
Similar metrics are common in business plans where I often see # of customers as a metric for growth. I also saw this problem with the prior administration of Indiana's 21st Century Fund where creation of jobs was the key metric for grant opportunities. The problem there is that there are good jobs and bad jobs - purely measuring # of jobs does not distinguish between the two. I could create tons of hourly pay jobs today if I wanted, but those jobs would be low wage and temporary. Not the type that would ultimately benefit the State. In short, the metric is not a good measure of success.
The difficulty with metrics is that they can come in just about any form you can imagine. They are simply a way to measure growth. The key is to tie them in with the ultimate goals of your organization. Most companies do not want growth at the cost of profitability. Personally, I would rather run a small shop with higher profit than a large shop with smaller or no profit.
So, here are a few poor and good metrics for successful business growth:
Poor metrics:
# of employees
# of customers
# of square feet of office space
Good metrics:
Net Profit at $_____, based on Revenue of _____.
% of customers at ___ % margin
___% profitability margin per employee
~~~~~~
Alerding Castor Hewitt, LLP is an Indianapolis law firm focusing on business law, information technology law (including SaaS law and legal technology consulting), private equity consulting, and business and Internet litigation.
A common metric that was discussed was # of volunteers in the organization in ___ years. Although this metric does measure growth, it does not measure the quality of growth. What if the volunteers are under committed, under trained or just plain lousy at their job? You may meet your metric but find that your organization is under serving the community, or worse, frowned upon by the community it is trying to serve.
Similar metrics are common in business plans where I often see # of customers as a metric for growth. I also saw this problem with the prior administration of Indiana's 21st Century Fund where creation of jobs was the key metric for grant opportunities. The problem there is that there are good jobs and bad jobs - purely measuring # of jobs does not distinguish between the two. I could create tons of hourly pay jobs today if I wanted, but those jobs would be low wage and temporary. Not the type that would ultimately benefit the State. In short, the metric is not a good measure of success.
The difficulty with metrics is that they can come in just about any form you can imagine. They are simply a way to measure growth. The key is to tie them in with the ultimate goals of your organization. Most companies do not want growth at the cost of profitability. Personally, I would rather run a small shop with higher profit than a large shop with smaller or no profit.
So, here are a few poor and good metrics for successful business growth:
Poor metrics:
# of employees
# of customers
# of square feet of office space
Good metrics:
Net Profit at $_____, based on Revenue of _____.
% of customers at ___ % margin
___% profitability margin per employee
~~~~~~
Alerding Castor Hewitt, LLP is an Indianapolis law firm focusing on business law, information technology law (including SaaS law and legal technology consulting), private equity consulting, and business and Internet litigation.
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