9 Types of Metrics Business Metrics
Examples and Tradeoffs of Different Performance Metrics in Business
Metrics are a core component of any small business that is looking to grow and strengthen over time. If there is one thing that holds true for any performance measure, however, it is that metrics drive behavior – good or bad. Deciding what to measure is of utmost important because no matter what you select, the organization will respond accordingly. Sometimes, this response can have unintended and unexpected negative effects. Thus, every small business must carefully choose their select few items.
The measures you set and the data you collect should enable managers and business leaders to make executional and strategic improvements. Today, we’re going to identify 9 types of team performance metrics that will help you understand what’s truly happening in your business, as well as highlight the tradeoffs of each.
Factors to Consider When Choosing Business Metrics and Measures
As we dig into the types of metrics you can choose, we need to first outline some critical factors to your decision. Tracking and monitoring business performance can consume a significant amount of energy and manpower, so there is a “cost” to metrics that should be evaluated.
To narrow down the type of information you opt to track, carefully consider the following questions:
Is the Data Readily Available?
If the metric you seek requires information that you cannot efficiently obtain or track, consider an alternative. Laborious data collection is a poor use of resources – look for other ways to understand the trend using a source of data that is easily gathered.
What is the Cost of Tracking This?
As the old saying goes, ‘time is money.’ Tracking details takes your talented employees away from bringing value to customers. Thus, you need to make sure the data is really worth the time invested – energy you spend collecting data is time not being spent on revenue generation or client support.
What is the Value in Understanding This?
Just because you can track and monitor a given aspect of team performance doesn’t mean you should. If you are unable to quickly explain why this data is useful to your organization, it’s probably not worth the energy it will take to monitor it.
What Will We Do With the Information?
Data for the sake of data doesn’t do anything. Metrics must drive action. If you are unsure how you will to take action from the information or what the information truly means, it’s probably not worth spending the effort to record it.
How Will Improving This Help Our Business?
You can measure just about anything. And, if you work at it, you can “improve” it. But does that really do anything for you? Metrics should strengthen your business and fuel growth – avoid wasting time on things that do not hold true value or move the needle.
A Quick Case Study in Choosing Bad Metrics
An organization we once worked with tracked the number of patents it filed as one of many key metrics.
Every year, the firm challenged itself to increase the number of patents it filed over the past year’s total, as an indicator of growth and improvement. Performance of its scientists and technical staff was measured, in part, based on how many patents they filed.
After several years, however, the organization realized it was paying a tremendous amount of money in legal fees to maintain their patents. Further, it also learned that patents really didn’t give them a strategic advantage in the market or block the competition.
As a result, the organization not only stopped their pursuit of new patents for the sake of having patents, but it also abandoned many of the patents it had filed.
As you review the types of business metrics that follows, remember that good measures should:
- Drive action
- Identify gaps and weaknesses
- Indicate where training is needed
Lastly, metrics can serve to quantify how your organization is viewed, internally and externally. For example,
- What sort of reputation do you want to have in the market place? (e.g. “The best product safety score.”)
- How can these metrics help your brand? (e.g. “Pizza delivered in 30 minutes or it’s free.”)
- How do you want your employees to feel about the organization? (e.g. “A 100% carbon neutral company.”)
With all that being said, here are 9 types of performance metrics for small business that you can use to understand and improve your company.
1. Financial Performance
Financial performance is, of course, a basic metric that every small business should understand. Things like return on sales and internal rate of return are well understood by accounting professionals. Thus, we will not explore them in detail here, but we did want to acknowledge that financial measures of a business are a given.
2. Speed
Outside of fundamental financial measures, the first type of business performance measure on our list is speed. Knowing how long it takes for essential tasks or activities to happen within your business has a number of benefits.
First, understanding speed helps you better plan schedules, resource needs, and make commitments to customers.
A quick look at online retailer behemoth Amazon is a perfect example of understanding the business value of speed. In the early days, Amazon’s Prime product offered customers free shipping on goods. After some time, Amazon Prime offered standard 2-day delivery. Later, it became next day. Now, in some markets, Amazon offers same day deliver on certain items.
Here are some examples of how measuring speed can help your business:
- Understanding how fast it takes to change a set of car brakes helps you optimize scheduling to minimize customer wait times.
- Knowing how long it takes to build your product enables you to provide more accurate shipping dates to your clients.
- Measuring the time it takes to perform certain tasks allows you to optimize and scale your workforce based on demand.
Why Focusing on Speed is a Good Idea
Generally speaking, speed a major customer delighter. For instance, plumbing companies that can quickly service customers with a leaky pipe will always have a competitive edge.
Additionally, speed often commands “premiums” – customers pay more for something they can get sooner. Using our previous example, a plumbing company that will respond to an ‘urgent’ request is bound to earn a hefty fee for their quick response.
The Downside of Speed Metrics
Speed is not always a good thing, however, particularly when it comes at the cost of quality. Improving speed is only effective until the quality of results begins to decline.
3. Quality
Like many people, when I shop for goods online, I always read the reviews. If I see anything that suggests “cheap materials” or “poor quality” I’ll rarely make the purchase. On the other hand, if I see comments about a “quality product” or “worth the money” I’ll typically select that brand.
Every customer wants quality. They want the product (or service) to be as advertised, generate the desired results, and to not require replacement or touch up. Thus, the quality of a product or service can either be a reputation builder, or a deal breaker.
It’s important to note that quality is not necessarily an external metric. Quality can also be an internal measure that can quantifies things like effectiveness of your internal processes, or how well employees do their jobs.
The below examples list both internal and external quality measures:
- Number of discrepant pieces (External) – Understanding the number or percent of discrepancies can help predict returns or complaints.
- First Pass Acceptance (Internal) – The measure of getting job done right the first time can help improve training protocol as well as address employee performance concerns.
- Process Rejections – (Internal) Understanding where process rejects are in each process can help you improve training, processes or equipment as necessary.
- Warranty Claims – (External) Recording and understanding warranty claims enables you to target product improvements.
How Quality Metrics Strengthen Your Offering
For product-based businesses, quality measurements can be extremely helpful in improving the customer experience and reducing costs. Further, establishing some set of internal measures to understand process yield and accuracy of work can improve product consistency.
Times When Quality is A Bad Metric
For more customized business (like painting someone’s home), results can be somewhat subjective based on a customer’s particular taste and expectations. Additionally, while measuring internal quality – say of work accuracy for a given department – can identify areas of improvement, it can also push employees to create unofficial ‘work arounds’ as means of boosting results.
4. Customer Satisfaction
Happy customers are good for business and thus deserve their own category. A customer who’s delighted by their experience is likely to return as well as to share or recommend your service to others. Customers who are left with a favorable view of your organization will often become you best sales people.
The opposite is also true – negative reviews, or a bad client experience can greatly hurt your reputation in the marketplace. Therefore, measuring customer satisfaction is an excellent choice for investing energy and resources.
Examples of customer satisfaction measures include:
- Tracking the average number of stars in customer reviews received each month can signal consistency or changes in customer satisfaction.
- Measuring the length of customer contracts (e.g. lawn care service). The longer a customer stays, the happier they are.
- Happy customers are likely to recommend, your business to others. Using a promotion code to track how many new referrals are given each month can indicate where you customer satisfaction level is at any given time.
- Repetitive purchases are also an indicator of satisfaction. Thus, you may wish to track repeat customers who order your replenishable products (such as make-up, supplies, etc.)
- Conducting deep customer surveys annually to obtain detailed feedback and recommended changes.
The Benefits of Measuring Customer Satisfaction Levels
Like quality, understanding customer satisfaction is important and can build a positive recognition around your brand. Knowing your customer’s pain points also offers valuable insight into how you can improve your offering, often in ways you’re unable to see yourself.
How the Customer Experience Can Lead You Astray
There is little downside to measuring or tracking your customer’s experience and satisfaction with your product. However, customer satisfaction can be very subjective, and the data can be somewhat difficult to sort.
For instance, customers may be more inclined to leave a negative review than they would a positive one. Getting your customer’s time to provide detailed feedback can also be difficult. Thus, while capturing customer satisfaction is typically a good thing, just be prepared to receive and evaluate the data within the right context.
5. Productivity
Measuring productivity of the organization is a very useful indicator of efficiency and processes. Whether you’re measuring the number of units coming off your line each month, or you’re measuring employee throughput, knowing where you stand helps eliminate waste as well as optimize and scale for further growth.
Productivity measures can include:
- Employee throughput – for example, the number of units produced per shift
- Number of reports generated per week.
- Wait time for certain process steps.
- Downtime of critical machinery or IT network issues.
Why You Should Measure Productivity
Understanding productivity is a great way to identify process improvement opportunities within your organization. Additionally, locating and eliminating bottlenecks and lost productivity within your systems can not only optimize costs, but also help business leaders plan their workforce size more accurately.
RELATED: Great Ways to Increase Employee Productivity
How Measuring Productivity Can Be… Counterproductive
All managers want to see a boost in output. However, throughput as a measure can have some unintended consequences – namely, sacrificing quality in the name of increased productivity. Thus, measuring productivity must be done in comparison to quality of work. A hastily performed job that results in poor quality may actually reduce productivity when the job has to be performed a second time.
6. Retention
Measuring retention can hold significant value for business leaders aiming to maintain consistency and stability within their businesses. Further, retention metrics are an indication of loyalty and satisfaction to the origination.
Examples of retention metrics can include:
- Employee retention – the % of employees who willingly resign each year.
- Customer retention – the number or % of customers who are repeat clients.
How Retention Metrics Can Help
Retention is an indication of stability and satisfaction (or lack thereof). For example, a high quantity of repeat customers is a sign of their level of happiness with your offering. By contrast, high employee turnover rates may suggest a fundamental flaw in your treatment of your workforce. In short, improving retention rates can reduce chaos and waste associated with bringing on new staff or capturing new clients.
RELATED: 10 Free Ways to Boost Employee Retention
When Retention Measures Don’t Make Sense
For some organizations, retention measures for customers don’t necessarily make sense. A roofing company, for instance, which only replaces your roof every 20 years might not want to invest time in tracking retention, as it’s a metric that will add little value to their day to day activities.
Customer retention can also have it limitations if a competitor reduces their prices or opens a location that is more convenient to your target customer.
7. Growth
There are a number of ways in which you can measure growth of your organization. The most obvious goes back to the beginning – sales and profit. Increasing sales and profit is a sign of growth.
However, if you have only one client who rewards you all of your business, is that a good thing? Not really – if that customer changes their approach or has an internal problem, you might be left out to dry.
Thus, here are some other examples of growth metrics you may want to consider:
- Number of unique customers you have in your portfolio.
- Customer diversity (large, medium or small companies, domestic and international clients, etc.)
- Types of contracts (one time, retainer, new market or aftermarket).
- Percent of market share.
When to Use Growth as a Metric
Growth is clearly a measurement that business leaders want to understand. It’s both a sign of a strengthening business, as well as an indicator of the value the organization is bringing to its customers. Flat or lack of growth indicates a marketing or strategy shift may be needed or can indicate that market forces are a hinderance that must be overcome.
How Business Growth Measures Can Be Misleading
Growth the sake of growth can be dangerous. As mentioned at the onset, metrics drive behavior. Accepting bad contracts, or poor margin business to boost “growth” indicators can actually be harmful. Thus, growth measures must be tempered with an element of growth quality.
8. Compliance
For highly regulated organizations, such as power generation or commercial construction, where government regulatory requirements are an essential part of doing business, measuring compliance is useful, if not essential.
Compliance measures may include:
- Audit scores from periodic certifying agencies
- Number of violations or issues identified
- Percent of findings caught during internal audits
- Annual pass rate for regulatory audits
- Product pass rate against industry standards
Where Compliance Metrics Can Help
For industries where satisfying government regulations is necessary, measuring compliance can be critical. Doing so can be the difference between winning a new contract or being disqualified from the competition altogether. Maintaining an internal audit or review process can help prevent regulatory findings from being identified when it really counts.
When Compliance is Not Necessary
Certifying to things like building codes or redundant safety measures is not the same as certifying your product or service to a particular industry standard. So, while there are not many downsides to measuring compliance, make sure the measure is truly important to your operation and your business.
9. Safety
Safety should be a core value to any business owner. All of us want our employees to return home to their families in the same condition they left home in the morning.
Even in seemingly harmless office buildings, injuries can happen. Thus, understanding and minimizing workplace injuries is an important part of protecting your workforce.
Examples of safety measures can include things like:
- Number of basic injuries
- Quantity of safety hazards identified in the workplace each month
- Injuries related to repetitive motion or ergonomics
- Severe injuries requiring medical attention
Why Safety Metrics are The Right Thing to Do
Identifying and eliminating ways in which employees may be injured is always a good thing. Measuring and quantifying things like loose hand rails, injury-prone processes in your factory and locations of ice during the winter can greatly improve workplace safety as well as improve employee morale.
Is There a Downside to Safety Metrics?
Once again, metrics drive behavior. While there is no downside to measuring and understanding safety issues at your workplace, it is essential to accept the data the way it falls. If an injury is severe, classify it as such.
Understanding workplace injuries in order to eliminate them is what’s important. Don’t let the classification of injuries become a performance metric for people, or staff will be motivated to downplay or “play games” with how injuries are classified.
Common Types of Metrics to Quantify Business Health
Measuring business performance can be done in a number of ways. Be sure to evaluate the metrics you choose to track through the lens of employee behavior: How will employees respond to this? What unintended behaviors or consequences may emerge? As a manager and business leader, it’s important to choose metrics that help identify problems and unveil ways to improve the organization.
Lastly, as your business grows, so should the type of information you track. If after some time you decide some data is not doing you any good, it’s perfectly acceptable to shift your focus to other measures that may offer better intelligence on your business’s inner workings. The point is simply to understand what’s happening, in order to become better at what you do.