The Importance of KPIs and Financial Insights for Your Business

So I really like to tell this story. So imagine yourself. I know we might not all be sports fans, but imagine yourself going to a basketball game. I use basketball because there's so many things happening inside a basketball game and the scores are so high that it really is a good demonstration of how your business operates. So imagine entering into a basketball game. Halfway through, you've got, your home team is cheering, but you've got a ton of visitors there, they're cheering as well. And as you walk in, you see shots being taken. You don't know whether it's three point or two point shots. So what you want to do is you want to look up to the scoreboard and say, okay, my home team just got a three pointer, right? Or was it two points? You look up and there's no scoreboard. And this is a big challenge because how do you know who's winning the game? How do you know if it was three points or two points? How do you know if your team should be on full offense or they should be playing more strict defense? How do we know how much time is left in the quarter or even the game? And if you're a coach on that bench and you don't know what the score is, how do you know what strategies to implement in order for your team to win? This is the exact same situation in your business. If you don't know what the score is, if you don't have those insights, how do you know what strategy to implement? How do you know if you're winning the game? How do you, how do you know if you're profitable? How do you know if your strategic choices are making a positive or a negative impact? Because ultimately, my goal is for you as an entrepreneur and for me as an entrepreneur, is to maximize our profitability so that we can reinvest those profits and change the world together. Because here's one thing guaranteed. If you don't have sales and you don't have profit in your business, you are ultimately going to be part of those statistical failures, which is, you know, more than 50% of businesses fail in the first five years. We can actually control that if we understand the financial analytics inside our business. And I will share one more sort of negative statistic is that of those businesses that fail, they fail not because they don't have a good idea, not because they don't have a really great team, not because they don't know how to sell, because they run out of cash resources. So understanding your business financials and having key performance indicators in place to Drive performance will eliminate risk in your business and will ultimately provide you a vehicle for financial success. So this is essentially how financial insights drive business. There's five ways that I want to just briefly introduce to you today. The very first is unlocking business potential. Ultimately, if you have key performance indicators and financial analysis in place, you're going to see areas that are maybe more profitable than other areas. It's going to unlock the potential for you to refocus on those areas that are super successful. The next is unlocking strategic decision making opportunities. This is where we can see trends, we can forecast outcomes, and we can adjust strategies to make sure that our business is heading in the right direction. I had one client a few years ago, he's a butcher shop. And he was very successful. And one of the things that we wanted to do with him is meet more regularly to review his finances. And during that period of time, he didn't want to necessarily do that. He was busy. He came back the next year and all of a sudden his business that traditionally made, you know, a quarter million dollars a year was in a loss position. And one of the things that he missed was that he didn't have up to date financial information. And when he didn't have up to date financial information, he couldn't see that the fuel cost had gone up on all of his deliveries. And in that, the delivery companies increased and added a fuel surcharge. Now, the butcher shop did not also add that increased cost to his customers and relay that price increase. And what happened was his margins that were fairly good got diminished. They were still positive, but because he didn't have the volume necessary to cover all his overhead costs, he went from a $250,000 profit down to a negative $130,000 profit. So really scary situation for him. Whereas if you had those financial insights in your business, you could have changed your strategy, you could have looked at your pricing strategy specifically flowed through that essentially fuel surcharge that you were being paid, that you were paying for your delivery costs. And you could have transferred that into the customer and continued to make your $250,000. Financial insights are imperative to the success of your business. When you have financial insights, you can have enhanced resource allocation. So what this essentially means is when we know how our business is operating, we know if there's opportunity for increased growth in certain areas that will allow us to reallocate resources or bring in more resources like employees to help push more profitable service lines, more profitable product lines, which you otherwise wouldn't know. You might just be going, you know, this has got the best price or this seems to be the highest in demand, where that those products or services might actually be losing money. We want to be able to understand the financial insight of our most profitable areas and how we can enhance that by redeploying resources to make it even more successful. And then improving performance measurement is the last one. So if we're thinking about holding our team accountable and we're going to talk about that a little bit in a little bit, but holding the team accountable and them understanding what the expectations are so that we can create a performance sort of level in our organization that's built on success. As the organization is more successful, we can continue to share some of those, some of those wins amongst the team. We can better benchmark and track progress of achieving goals and we can identify bottlenecks and essentially eliminate them to again improve our success rate in our business. So when you're looking at building out KPIs, there is a well defined path of how we want to do this. So the very first thing we have to do is we have to set our company goals. Now I usually say this, you know, if you don't know where you're heading in your business, any road will take you there. And if I think I'm just outside the Toronto area in Canada, if I'm thinking of driving to la, I'm not going to just hop in a car and point the direction of the sun and hope for the best. What I'm going to do is I'm going to pre program this into my GPS system and what we're going to do is we're going to define this is where we want to go, this is where we're starting and this is how we're going to get there. If I don't understand where I'm going in my business, I any road will take me there. Getting very clear on your company goals is so important. Once we have a clear understanding of what our goals are and what we want to accomplish, we then start defining our KPIs. This is where we choose performance indicators that align with our goals. So here's a really good example. If we have a sales related target, you know, we want to grow our revenue a million dollars this year, we need to understand some key elements and say, well, how many sales do we need? What's our average purchase price? How many leads do we need to get into our business in order to book enough sales calls in order to generate that revenue? What are some of these statistics? So we need to understand key metrics inside our goals so that we can outline them. So choosing those KPIs that help essentially hold us accountable to achieving those organizations overall goals is what we need to do next. So then we hit the setting targets and benchmarks and this is where we start thinking of how many leads we need in. You know, if I need a hundred leads in how many sales calls do I need to book? Is it 50 sales calls a week? If I have 50 sales calls a week, does that get me 25 new sales a week? Is that maybe if I'm a retail store, is that how many I need to continue to hit my overall company goals and objectives for the week, we need to understand what those targets and benchmarks are so that we can then be held accountable to it as well. Next we create a KPI measurement system, establishing a system for collecting and analyzing data. So where is this information going to come from? I know for us, Obviously we're huge QuickBooks online advocates, but we also have integration apps that work with QuickBooks Online and a CRM platform. So currently we're using HubSpot. HubSpot tracks a lot of these metrics for us. As we're bringing in leads, we're tracking leads their progress towards turning in sales. When we're essentially setting these targets and benchmarks of this is our goal for the week, we then have that measurement system that's in HubSpot to track our sales. If we want to think of another opportunity, we want to look at maintaining gross profit margins. Gross profit margin is essentially the profit you generate on your revenue. So for example, if you are profiting $30 on every $100 sale, that's a 30% profit margin. A KPI measurement system that we have in place would be to track what our gross profit margin is, which we would do in QuickBooks Online to make sure that our company is continuing to sell at prices and deliver with the utmost efficiency to make sure that we stay above that 30% gross profit margin. And then next we implement a reporting cadence. So depending on the KPI and the measurement, we likely want to break this down to annually for sure. Monthly and quarterly. Absolutely. But I like it broken down even into weekly. So actually reviewing these performance metrics and these benchmarks on a weekly basis so that our entire team is aware of what they're contributing to the overall goals. Are those overall goals being met individually and by department? And if those individual goals are being met individually and by department, is that helping achieve the company's goals? Because if the company's goals are being met. We're all going to continue to have more opportunity, more success, more confidence in the longevity of our business, and the business is going to have greater impact. So we want to make sure that that reporting cadence is as frequent as it needs to be to make sure we stay on track. And then at the end of the day, our goal is to continue to improve and evolve on these KPIs. Tighten them, maybe change them, monitor them, maybe. You know, the number of sales we're making a week isn't the new key metric, right? Maybe that's not it, because the average transaction value continues to go up and down. Maybe we need now 45 sales versus our 25. So we need to continue to monitor this and improve it along the way. But I got to tell you, once you have your KPIs really dialed in and you have your financial data on how these end results are coming into your business, when you see all these things coming into play, you'll know exactly whether you're on track. On track to achieving great financial outcomes.