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Sales Tips

Measuring performance in business: a step-by-step guide

November 27, 2019

Measuring performance in business: a short guide

“Data-driven” seems to be the term of the decade, but how do you measure performance in business? We’ve developed a step-by-step guide. Let’s take a quick look at it.

1. Identify your goals

Whether you’re running a small online store or a multi-million dollar ad agency, you need to think in terms of your goals. These goals define your strategy and direct you to adjust your business model, if necessary. Goals should be determined based on three factors. These include the market, the company and the resources.

The market and your share in it should be considered when you determine your goals. If you are publishing a newspaper nowadays, it’s probably not a good idea to expect a two-fold growth within a year. But if you just launched an app that’s trending, you can predict growth at least equal to that of the industry. If you know you are well equipped with staff and have enough resources to market your product, make sure to consider the potential growth in sales. But if you can’t afford to invest in that new marketing campaign and your investors aren’t willing to help, don’t expect to see users pop-up out of nowhere.

Once you have your goals laid out, think about your business model. A good business model identifies revenue streams, potential expenses, and a customer base. How likely are you to achieve your goals with your current business setup? This is the time to lower those subscription fees if you predict you won’t get enough users otherwise. Or, if you are looking to increase revenues, perhaps it’s time to come up with ways to charge customers who aren’t paying. Setting goals is the first step in measuring performance in business.

2. Put together a budget forecasting your revenues and expenses

It’s all said in the sentence above, but it’s surprising to see small businesses and startups without a spreadsheet forecasting their profits. You don’t have to predict an exact amount of office supplies you will purchase in the following year, but setting a benchmark on your spendings in key categories is vital. The big expense categories are marketing, staff, equipment, office rent and production costs (the last ones are present only if you are manufacturing a physical product). Your revenue streams will be specific to your business.

Two people in a meeting measuring performance

3. Set your key productivity indicators and develop tools to track them

Key productivity indicators (KPI) are quantitative values that illustrate how well your company is achieving its key business objectives. The objectives are decided ahead of time and teams keep track of their progress towards them. These are the main metrics which measure business performance. Sales teams usually track new revenue. You probably want to know how much your sales reps are selling in a given day, week and month. These targets can be broken down individually, by division and aggregated for the company as a whole. Customer success teams look at how long it takes for them to resolve support requests. As for marketing, teams usually track acquisition costs (how much are you paying to get a new user) and retention (how long your users are staying with you). These KPIs will help you realize both successful parts of your business and areas for improvement.

4. Develop tools to measure your business performance

Your KPIs can be visualized with dashboards via various software solutions. amoCRM, for instance, has a customizable analytics section where you can set targets, predict future sales and measure progress.

Ideally, you want to have dashboards that illustrate your goals and your progress towards these goals. You also want to be able to see trends. Say, right after you launched a new marketing campaign, your customer acquisition costs have gone up while retention sank. Noticing this in a visualization tool early lets you immediately adjust the campaign. Or, you might have sales reps who aren’t selling well a new product you launched. Early notice lets you provide timely training before clients are off with a competitor. The budget you put together earlier should also come in handy. Referring to it regularly and comparing your actual revenues and expenses to it is key in measuring performance in business.

amoCRM has a customizable analytics section where you can set targets, predict future sales and measure progress.

5. Adjust your forecasts, goals and the business model accordingly

If you know you won’t hit your sales target by the end of the year, it’s time to adjust your forecasts. I remember myself working for a startup where we laid down continuous growth on a month-to-month basis. Things were going as planned until September when our GMV (gross merchandise value, or, in other words, all sales totals added together) sank due to seasonality. We had to adjust our forecasts after we realized that we won’t hit the summer numbers until Christmas. If your business is new, you probably don’t know how seasonality can affect your metrics. Adjusting forecasts each quarter is a common practice. Based on these new forecasts, you can set realistic targets for your teams.

Finally, you might need to make changes to your business model. That subscription program you were banking on might have proved itself worthless and now you’re looking to make money from add-ons. If your metrics are telling you it’s time to change things, don’t put it off until it’s too late. The insights you gain from measuring performance in business will allow you to make timely changes and deliver the best results.

Vlad Alexeyenko

Writer @ amoCRM

Business and Data Analyst at the junction of transportation & technology.