Measurement That Matters

We’re warned that pride is a bad thing. And I fully understand. Pride entraps its victim in a blanket of mock superiority on its way to personal doom. Boasting becomes pride. Pride becomes conceit. Conceit becomes no one.

Funny, but the ever-boasting blowhard of self-achievement ‘thinks’ that their accomplishments make them more attractive, more fun to be around, more likable. None are true. Just as this paragraph started, they make you a blowhard. Knowing all this…

I am extremely proud of my children. There, I said it. Both are very accomplished and excel further than I could have ever imagined. And all this was achieved with at least half of their parents not being all that great of a student. (Guess which one!)

If my chest pokes out any further, I will have Eva Mendez’ profile… or snap a rib. So, I’ll stop.

In the job world, the surface measurement of success is usually money. This – along with pride – is another set up for the Scriptural Sin Grab Bag. Sure, many worthy alternative definitions of success abound: title, influence, responsibility, result, impact. All are important; all are worthy of your focus. Harder to measure, but worthy.

Yet, here is THE problem with most contractors’ measurement and focus –

Most don’t measure, OR focus on measurements that matter. Look at your business license. Unless it says “charitable organization,” your obligation is to earn a profit. This profit – unlike the snide redefinition by the largely unproductive that consider profit as pure evil – became yours when customers paid you more than you paid for it. Simplified, but true.

I’ll go so far to suggest that accolades, unless they add to your cache, boost your position in the marketplace, distinguish you from competition or can be monetized, mean little. Even the Boy Scouts plot Merit Badges toward a larger goal.

Yet, many businesses don’t make the measurement ‘connection.’ They look at some surface indicators and skip to the next. Just like a “great” student can be a common-sense village idiot, one needs to look deeper, ask the better question.

The oft-braggy points of “followers on Twitter,” “friends” and “connections” are fine gold stars, but unless convertible thereto by sales alchemy, they mean little. A friend of mine who runs a fine business here was awarded as a “Top Emerging Business” from the Chamber. When I congratulated him, he quipped, “Now if I could only use that award to make payroll.” He has his head screwed on very straight.

So, what do you measure, and how do you measure up?

Ø  Lead Generation – This is the ‘surface’ seekers determinant of future sales. A good measure, resultant from good and steady marketing – italics intended. Yet, many contractors who get low lead counts don’t measure that about 60% of the marketing dollars should be in Direct Response marketing. More leads should result in higher…

Ø  Monthly Sales – Another surface measurement of health, but the more “telling” figures are just beneath: a) What is the average transaction compared to year ago, b) What are the source of leads that got these sales? Usually, people DON’T ask the preceding, but jump straight to…

Ø  Sales Closing Ratio – The number of transactions resulting from the number of leads spits out this over-rated measurement. Since profit is the business’ goal, the deeper motive should probe: a) Gross margin per sale, b) Gross profit per salesperson, c) Source of highest margin sales. Closing ratio is important, but only within meaningful profit ranges. Seek both. Higher profit allows for excellent customer service, more marketing presence and the wise businessperson’s Holy Grail toward the measurement of…

Ø  Customer Retention Rate – Most don’t measure this, so here’s my first installment of Dummy’s Guide to Business Math. If you’re acquiring customers at a 15% rate (contractor average) but losing 15%, then the ‘next level’ will remain elusive. I figured that out by myself. You think the “15% loss” is over-stated? Contractor average is between 9 and 11%. If you’re making no effort to keep, you’ll eventually run out of “new” customers to acquire, and will have paid a fortune for that lesson. You’re going to lose 5% of them because they died or moved, which makes them very difficult to service. Work at Customer Retention, and you’ll naturally get this…

Ø  Customer Referral Rate – Another unscratched area that can have a profound impact on your business. Most contractors “accept” referrals – who wouldn’t? – but what if you pursued them? Reward, incentive, remind, request, just plain ASK for them in a polite, non-threatening way, and you’ll eclipse most of the dead-heads “waiting” on them to happen.

Our job, your job, is to earn a profit. In the end, the marketplace will tell you if you’re entitled. Repeat customers and referrals tell you even louder. Having the brightest employees show up to compete to work there says it louder still.

Measure the right things.

Make your customers proud to call you their own.

Adams Hudson

Question: What is a measurement YOU use successfully in your business? Answers to coaches@hudsonink.com.