As more of your business operates electronically, particularly on cloud based systems which integrate with each other, the volume of data that can be easily captured and analysed is increasing. So how do you ensure that the right data is being recorded, in the right format? And how do you filter, so that the right metrics are being regularly reported?

The two most important considerations for capturing data are

  1. automate it; and
  2. capture it at the earliest point you can.

For example, when looking at your sales, you have different departments and different client segmentations. At the moment, this information is added in by your finance team when they are preparing the management accounts at the end of each month. If you need to look at this information mid-month, it’s not available. So it’s better to include this information when the invoice is raised. Better still is to set up rules in your accounting system so it automatically allocates it to the right department and client segmentation, meaning no manual intervention is needed.

The best way to ensure that this happens is to have standarised processes, that are documented. This maximises the chances of the data being processed consistently, improving the accuracy of that data.

But having a process written down isn’t always enough. The team need to understand the importance of using that process and capturing the information you’re asking them to. So explain the why and share the output with them, so they can be accountable for the data too.

So let’s assume that the data is being captured consistently, in a format that is readily available. The question then turns to how this data should be used.

The starting point for what information is reported should be the data strategy.

  • Where are you aiming to get to?
  • What goals have you set yourself and the team?
  • How do you stand out from your competitors?

All of these questions should drive your KPIs.

Once you are clear on these answers, you can then break them down to consider what measures would show whether this has been achieved, and what measures can you track that show that actions are being taken that will get you closer to the goal.

Let’s assume you are a software business with three tiers of package and your goal is to increase the percentage of customers taking out the top tier from 15% to 25%. This would be your lag measure, and you would regularly report on this, showing a comparison to the target.

But you would also set a lead measure for your sales team, for example that they need to call 30 customers who are on the bottom and middle tier each week, and then report on this weekly. The key is to make sure that this reporting is clear and visible to the team so they can see how they are performing against their target, and that they are accountable for the numbers.

Taking a step back, and keeping with the same example, let’s assume that this goal was one of many which were part of a wider strategy to improve profit margin by 10ppt over the first six months of the financial year.

The obvious lag measure which should be in the monthly management reporting is the profit margin achieved in the month, compared to the target, as well as showing the profit margin trend over a number of months.

The profit margin should also be broken down to show the gross margin by the different segments in your business, by customer segmentation etc. and also have analysis on overheads. These KPIs will all have an impact on the overall target, and this analysis will ensure that your monthly focus is on the areas that will have the biggest impact on the goal.

There are also metrics which should always be tracked, regardless of the strategy. These metrics indicate any underlying issues in the business, which could cause problems if go unnoticed.

These include:

– Cash conversion (Debtor days/creditor days)
– Revenue by key stream
– Gross profit margin (%) by key stream
– EBITDA margin (%)
– Cash headroom (if in cash constrained business)
– Customer retention rates

Going through this process, you may identify data that is being collected in the business that is never reported on. You might then be tempted to change your processes so you’re not wasting time capturing information that you’re not using. Don’t. For two reasons.

Firstly, if you’re capturing the data right, it will mainly be automated so putting data storage costs to one side, there is a limited cost to holding this information.

And secondly, the measures being reported could highlight a potential problem, but not give you all the information you need to figure out what is causing the issue, and therefore provide a solution. This is where all the other data comes is, as you can then do a deeper analysis. I’ve seen this first hand in a lot of companies when I start working with them. They know that something is not right, but they don’t know exactly what. They then have to use their instincts to make changes, see the impact, and then adjust. Data which is readily available for analysis as soon as the problem has been identified means that businesses can get to a solution faster.

In summary, the metrics regularly reported should be limited to those that are:

– Linked to your strategy;
– Simple to understand;
– Shared with the people that can have the biggest impact on the number in the future; and
– Fundamental to keeping track of the health of the business

Everything else should be kept as a back-up to use when needed. For more assistance get in touch.