3 Key Metrics for Small Businesses to Monitor
I assume you know how much you’re spending on advertising. It’s an easy metric to compute even if you’ve only been in business for a month.
There are other very important metrics most business owners and managers will follow once they have some sales history, such as lifetime value, inventory turnover, and other traditional business measurements. Further, with an online presence being so important for most businesses today, a wide range of website and social media statistics have become increasingly important.
However, there are metrics critical to the long-term success of companies that many business leaders overlook, or fail to follow closely enough. They may believe that they don’t impact the bottom line directly, or perhaps they’re too difficult to measure.
Key metrics for small businesses to track
1. Cash conversion cycle (CCC)
The cash conversion cycle (CCC) is an important key to the success of many of the biggest movers and shakers in business today; Amazon is a notable standout. From the very beginning, Amazon founder Jeff Bezos has worked to optimize the company’s cash conversion cycle.
CCC basically rates your cash flow, and is relatively easy to compute:
- Take the number of days of inventory you hold on average;
- To that number, add how many days it takes your customers to pay you;
- Finally, subtract the number of days you take to pay your suppliers.
The result you'll want to see should be a low number. Back in 2013, Amazon had a CCC of negative 30.6 days, and that’s how the company was able to fund so many investments.
Driving down your CCC into the single digits should be your goal. It requires just-in-time inventory systems, quick payment from your customers, and lenient terms with your suppliers.
2. Employee satisfaction
Employee satisfaction may be a bit more difficult to measure than your CCC, but it may be even more important. Happy employees are often more productive. They are also less likely to leave, which is costly to businesses due to the time and money costs of searching for and training a replacement.
Along with tracking employee satisfaction via surveys and informal means, I suggest you also compute the costs of employee turnover. Recruiting, hiring, and training are tangible costs that should be made readily available. When your employee satisfaction levels go up, you should see your turnover costs go down.
I should also mention that there is another metric associated with employee satisfaction—or lack of satisfaction—that is more difficult to measure. Dissatisfied employees cause you to pay a price with customers. This is due to lost sales, a slower pace of sales, and, in some cases, lost customers.
It reminds me of a story Southwest Airlines founder Herb Kelleher shared about business schools asking their students which comes first: shareholders, customers, or employees? Kelleher's response: “Your employees come first. And if you treat your employees right, guess what? Your customers come back, and that makes your shareholders happy. Start with employees and the rest follows from that."
3. Cybersecurity training
Not too many years ago, cybersecurity training wouldn’t have made the list. But today it’s a sad truth that every business—large or small—is subject to cyber attacks.
An Accenture study found that 43% of cyber attacks are on small and medium-sized businesses. Many business owners have been victims of a cyber attack without even knowing they were under attack.
There can be extremely high costs associated with cyber attacks—some of these are direct, others are indirect. For example, if you’re forced to pay cyber criminals in a ransomware attack, you know immediately what the cost is. However, if you have a data breach that results in a loss of business and developer costs to repair your network systems, it’s difficult to get a handle on the full cost.
There are a variety of steps you can take to improve your cybersecurity, but employee training should be the cornerstone of your efforts. You need to have good onboarding cybersecurity training in place, along with continuing education. The bad guys are always getting more sophisticated in their attacks, so this is far from a “once-and-done” training situation.
Another good idea is to test and monitor your team. There are both paid and free systems that will randomly send members of your team “phishing” emails to test their knowledge and vigilance. This is a great way to judge the strength of your training and keep your employees alert to the threat.
If you become a pro at monitoring these costs, and use that information to invest wisely, it will greatly improve your ability to succeed in today’s rapidly evolving commercial environment.
RELATED: Are You at Risk From a Cyber Attack? Here’s Why Your Business Needs a Cybersecurity Plan
