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Do the Key Performance Indicators (KPI's) You're Measuring Say Anything about the Value of your Business?

By Mark Wardell @MarkWardell |

Nearly everyone would agree that growing value is a good idea, but what does that really mean and how do you measure your success?

Nearly everyone would agree that growing value is a good idea, but what does that really mean and how do you measure your success?

If you're like many business owners, you may use a system of Key Performance Indicators (KPI's) as benchmarking tools to measure your progress. For example, you may track your sales figures, your expenses, your gross margins and so forth. You may even regularly review your balance sheet.

Back in the day, I set out enthusiastically to do just that. I implemented what I thought were meaningful KPI's with the goal of keeping my company on track and my team inspired. What I failed to realize, however, was that the type of value I really needed to track was not being measured by the numbers I was looking at. The numbers were important, they just weren't enough. They showed me how much money I made last month, but they did little to show me how much money I'd be making next month, let alone next year.

What I came to realize was that, while important (I'm NOT suggesting you stop reviewing your financials), our performance indicators represented a financial slice of history. The information we were looking at didn't indicate significant, forward-building value. It looked backwards. What we needed were numbers that reflected why our clients would or wouldn't continue doing business with us. We needed an entirely new set of indicators. Ones that looked forwards, as well as backwards.

The lesson I learned is that while numbers can demonstrate changes in sales and expenses, they are 100% more effective when they reflect answers to the following questions:

  • Are my products/services creating value for my customers?
  • How do my customers perceive and measure that value?
  • Is my company creating value for itself?

Considering these points will help you identify the indicators that will best keep your company on track with your future growth plans.

One way to begin making your indicators more meaningful is to conduct a survey among your clients/customers. For example, a survey I posed to my Wardell clients revealed three important reasons why people do business with my firm.

  1. A guarantee they will enjoy success using our program (we promise to double their net value within 2-3 years)
  2. Assurance in our processes and methodology (we have a proven track record, backed by accounting and industry professionals)
  3. Personal guidance in achieving their measurable goals

Though my team and I may have known these value-promises were important, a client survey helped us get more specific. For example, we now measure and track the market value of our clients' businesses on a regular basis. As long as these numbers continue to climb, we can be fairly confident that our clients will continue to see value in our services.

Now in everything we do, our first objective is to clearly articulate our stronger, clearer value proposition, and to ensure that the benefits our target clients are seeking are readily understood.

As you develop your own Value Indicators, the questions to keep asking yourself are:

  • "Is value being communicated by this number" and
  • "What does this number indicate about the future?" 

For example, customer satisfaction surveys become forward-looking tools once you measure and understand their relationship to your customer retention numbers, which in turn, are a reflection of how people value your services. If customer satisfaction slides, you can immediately address the issue of why your customers' perception of your value is dropping. By identifying this problem directly, you then have the opportunity to rectify it before your sales begin to slide.

Adopting a values-based approach to KPI's applies to every measurable component of your business. Anything that is important to your operations and development, such as margin growth, inventory turns, and customer satisfaction levels, should be measured. To stay on track, compile your results into a standardized format to help monitor how well you are doing at any given time and then share this information across your organization. By determining how to make your numbers value-reflective, you'll find they become alive and motivating to your team. In fact, don't be surprised if people start calling you their Chief Value Officer.

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