How to build a scoreboard for business success
The great thing about sport is that there is some sort of scoring system that lets you know who is winning and who is losing. Of course with having a score you also get the anguish, excitement, exhilaration and disappointment that goes with it.
Business is also a game that people win and lose at. Yet most businesses don’t have any sort of scoreboard at all. As a business coach I find that the only scoreboard many businesses have is the tax return that is often completed 12 months or more after the end of the financial year. And then the main score that people focus on is how much tax they had to pay. The less the better! The trouble is if they aren’t paying much tax in most cases that means they aren’t earning much money.
Also, it never ceases to amaze me how many ‘supporting scores’ there are when you listen to any sporting commentary e.g. tackle count, time in possession, shots on goal, score assists, handballs, forced errors, unforced errors, first serves in etc. etc. All these supporting scores or Key Performance Indicators (KPIs) are ways for the coaches and players to measure the activities the lead to the final result on the scoreboard.
In business there are also many KPIs that measure all the activities that go on that lead to the business succeeding. For example, revenue, gross profit, number of leads, ‘conversion rate’ of leads to sales, customer satisfaction, employee satisfaction etc.
KPIs help business owners and sports coaches to identify what is working and what isn’t working in a business or a game and give focus to the key areas of activity that need to improve. For example in a business, do you change your advertising to try and generate more leads or better quality leads? Do you change the way you present your quotes or tenders? Do you try and increase your average sale by ‘up-selling’ e.g. McDonalds sells millions of dollars of fries per year by asking ‘do you want fries with that?’
Building Your Own Scoreboard
A great place to start developing a scoreboard and KPIs for your business is to go back the very basics. Start with working out if you actually have a sustainable business model that will bring you the type of prosperity and lifestyle you dreamed of when you started.
Recently I was working with a mechanic Peter and his wife Sarah, about how they could increase the profitability of their business. They pay themselves a basic wage each year but for the past four years haven’t made a profit and were losing faith in the business.
What is the Break-Even?
We started by setting up a Business Model on a spreadsheet (you can do it with a pencil, paper and calculator as well) and listing the fixed costs for the year so we could work out what the break-even was for the business each week and month.
You Need to Pay Yourself
Next they added in an industry based wage for themselves and then a reasonable net profit figure. They said they would like to earn a profit of around $50,000 to make running the business worthwhile (and it would help pay off a chunk of their mortgage).
[Next: Revenue, Variable Costs and Gross Profit]
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Andrew,
I couldn’t agree more. It’s the volume of gross profits a business makes rather than the volume of sales that is important.
I’ve been working with SMEs for over twenty years and I’m always amazed how few know just what areas of their business their business comes from.
In my terms there are profit leaks all over the place.
When I review all the businesses I’ve looked at over the years the most common problem has been the lack of management information.