There's never been a more important time to use key performance indicators. In this article, business coach Daniel Fitzpatrick explains why
Doing business is hard right now. Material and wage costs are increasing by as much as 10%, according to the RNZ.
The constant disruption of schedules, jobs being shifted around all the time, a downturn in the market in some areas, a shortage of good staff, your existing team having more time off and expecting more leniency – all of this makes it a tough time to be a boss.
All these things add pressure to your profits, cashflow and day-to-day running of the business.
Key performance indicators (KPIs) give you the ability to keep a firm handle on all important aspects of your business without having to be involved in every detail.
The truth is, tracking your performance numbers and your progress is the only way to make sure all your hard work will be worth it.
Let’s jump in:
1. Use KPIs tomake difficult conversations with staff easier
Ever had a team member who wasn’t performing, had a bad attitude, or was making too many mistakes? It’s easy for these issues to get kicked down the road. But the longer it goes on, the worse it gets.
The best thing about KPIs is… it’s not personal. It’s just about what the business needs to be successful. When standards have been set, everyone knows what’s expected, and it's clear if they are meeting the mark – or not.
For example, I once worked with a building company that needed more jobs. The sales rep was not getting the results. It was awkward. There were lots of excuses and the owners were almost resigned to accepting poor performance even though it was hurting their business.
We worked together on putting KPIs in place. Suddenly, it was much easier to have those sales conversations. Combined with the right support, the focus shifted to meeting targets, tracking how many new enquiries there were a week and aspects of the job like how many quotes were completed or followed up on.
Conversion rates increased from 22% to 35%, which everyone was happy about – including the rep, who was on commission.
2. Use KPIs to get staff into an accountability mindset – and fix underperforming
Are you wondering how to get your team to perform at its best? It’s one of the hardest things about being in business. Unfortunately, if you don’t provide the right structure and direction, even your star players won’t be able to deliver.
Do your team members know if they are winning or losing each week? Is their definition of success the same as yours? Developing KPIs with your team will get everyone on the same page.
The trick is: KPIs only work if your team owns them.
To get buy-in, get your staff to come up with their own performance goals.
A drainlayer I have been working with recently had a lot of issues in his team of seven. Jobs were taking too long, gear was being forgotten, and there was a lack of accountability when things went wrong.
He’d tried motivating them before without success, so was sceptical about KPIs. But he brought it up at the next team meeting and gave each team member the responsibility of coming up with his own KPIs (with a little guidance).
KPIs ranged from the apprentice turning up on time through to the foremen committing to finishing jobs on schedule. Results were already starting to happen and then, one day, he overheard his guys comparing their individual targets and how they were going to go about achieving them. That was when he knew it was really working.
Remember to only measure your staff on stuff they have influence over!
3. Don't overcomplicate KPIs – only use the ones you really need
KPIs are most effective when they are kept simple. In each part of your business, you should only have a few key things to focus on.
For example, if you want to improve cashflow, then the main KPI to watch is how much cash you have in the bank after all bills are paid.
The numbers you’re tracking must be identifiable, so you can use them to make smarter decisions. If not, what’s the point?
When I work with tradies to improve their profits, I put all their most important KPIs into one dashboard. Then it only takes around 20-30 minutes a month to see how we’re tracking and gives them laser focus on where to concentrate to get the best results.
This dashboard is a quick check thanks to having all the numbers in one place. The last thing you need is to be hunting out info all the time!
One company I’ve been working with for the last eight months has gone from significant losses to now making $10k-$20k every single month. This success is mainly down to using the dashboard consistently – consistency is key.
4. Never base your KPIs off what others are doing
A word of caution: don't look at what others are doing and think you should be doing the same, and definitely don’t measure success by how big your team is compared to theirs. Take it from me – a bigger team does not automatically mean a bigger profit.
KPIs will vary depending on what stage you are at in your business. When deciding what your sales target should be, don’t look to others. It will depend on where your break-even point is, your gross margins, and how much money you want to make for the year. It's individual to you and always will be.
If you’re a builder, you won't be getting the same margins as an electrician. If you complete high-end work, your margins should be higher than others in the same industry. It’s important to get crystal clear on where your margin should be specifically for your business.
Wouldn’t you rather base your pricing and margins off concrete numbers that are right for you and your overheads. That way, you know that you’re making money on every job and know exactly where you’re winning and losing.
5. Use KPIs to avoid expensive mistakes
By now, you’ll have realised that not having really solid KPIs is costing you more than you thought. Lost margins, lost profitability, lost focus.
Knowing exactly what you are aiming for will help you avoid mistakes (or at least see things in time to make adjustments).
You can avoid pricing incorrectly (usually this happens if you don't know where your target margin should be) and avoid leaking profits by tracking jobs well throughout.
You can avoid booking too many jobs by working out exactly how much work is optimal for your team. This also means not burning out your team (and reputation) with too much work and crazy deadlines.
You can avoid constantly not having money in the bank when you need it and sleepless nights with cashflow worries, because you haven't created a cash buffer or know what that should be.
These mistakes all cost you time, stress and money.
Bottom line? Running a business without tracking your performance is like being the captain of a ship in the dark during a storm, trying to avoid the rocks without a lighthouse to guide the way.
Trades business coach Daniel Fitzpatrick has been helping tradies increase profits and win back their weekends since 2010.
Need some help to get your team performing at the highest level? Book a free strategy chat with Next Level Tradie director Daniel Fitzpatrick here: nextleveltradie.co.nz/nextstep