How do you know whether your brokerage is set to achieve great things? Here are 7 ways to make sure you're on track.
How do we measure business performance, and how do we select what to measure? Michael Quinn reveals all.
We all understand that profit margins and revenue are vital to a company’s success. There are, however, so many other factors that determine the success of a business. For any company to improve and grow, having performance management systems can be an important way to keep track of the progress of the business. Not only do they give you information about what’s happening now, but they also provide a starting point for setting goals and implementing strategies for growth, and examine triggers for any changes in performance.
However, as organisations continue to increase in complexity, it becomes more and more complicated to identify the key drivers of organisational effectiveness. So how do we measure business performance and how do we select what to measure?
The key is to focus on quantifiable factors that are clearly linked to the drivers of success in your business and your sector. These are your key performance indicators (KPIs). KPIs will vary from sector to sector and from business to business. KPIs are at the heart of any system of performance and target setting, and when used correctly they are one of the most powerful tools available for growing businesses.
Ask yourself: what is it that drives success for my business? Be sure to tailor measurements to your specific circumstances and objectives.
Consider the following when setting goals and targets for your business:
1. Define your goals
Determine your measures for success. Your goals should be SMART – specific, measurable, achievable, realistic and time-bound. What is it you want to achieve? Do you want to increase customer retention, improve market share, penetrate a new market segment, change a perception, generate more enquiries, or reduce customer complaints?
Using KPIs, ensure that your targets will meet the specific and measurable part of the SMART goal system. You need to set challenging targets to motivate yourself as well as your employees, but remember that if you set unattainable targets you may discourage your employees.
Look over the performance data for the past couple of years to get a sense of what kind of performance boosts you’ve seen before, and this will help you determine what is feasible. Achievable goal setting flows on to realistic goals and targets. To be realistic, a goal must represent an objective towards which both parties are able to work. A goal can be both high and realistic. Finally, a goal should be grounded within a timeframe. With no timeframe, there will be no sense of urgency.
2. Determine the metrics to measure your company’s performance
Once you have identified your key goals and targets, compile a list of factors that are important to achieve success in your industry. These may include but will certainly not be limited to:
Once you have identified your key business drivers, find a way to measure them. For example, if customer service is a priority for your business, then you should start measuring this. However, there are many ways to do so, such as:
Customer service priorities vary from one industry to another. One is not necessarily more important than the other – the challenge is to find which specific measure enables you to improve your business.
3. Identify and understand your strengths and weaknesses
A SWOT analysis is a useful tool for analysing your organisation’s strengths and weaknesses, and the opportunities and threats you face. It helps you to focus on your strengths, minimise threats, and take the greatest possible advantage of opportunities available to you.
Decide on the objective of your SWOT analysis, then research your business, industry and market, and list your business’s strengths and weaknesses, and any potential opportunities and threats to your business.
By looking at your company against your competitors, using the SWOT framework, you can create a strategy that helps you to distinguish yourself from your competitors and gain that invaluable competitive advantage.
4. Compare against benchmarks
Benchmarking is a valuable way of improving your understanding of your business performance and potential by making comparisons with other businesses in the same sector. Certain industry benchmarks are available on the ATO website, and MPA’s range of annual surveys and reports also provide valuable snapshots of the mortgage broking industry.
You can also measure the change in your business performance against a previous period or against a budget you have prepared.
5. Focus on customer retention
Finding and retaining clients is a crucial task for every business. When you’re looking for areas of your business to measure and analyse, ask yourself how much you know about your clientele. Getting a new customer is five times more expensive than retaining a current one, so you can understand the importance of customer feedback.
Work on the core product and service attributes for building customer loyalty. Businesses must focus on such issues as instilling a helpful-staff attitude, delivering on advertising promises, and providing accurate product information.
Try viewing your business from your customers’ perspective – this will keep you on track as you consider options for growth.
6. Use ratios to interpret the results
Using ratios will give you a great insight into how your business is performing. Rather than reviewing the gross profit as a dollar value, track the profit as a percentage. Using a ratio makes it much easier to spot trends and compare against benchmarks.
You can use ratios to track all income and expenses. It may also be worthwhile to track your debtor days as a percentage (how long it takes your customers to pay you), or your creditor days (how long it takes you to pay your suppliers).
7. Take action on your results
Report on trends that emerge from your findings on a regular basis – your results will help you decide what you want to do differently to change your results in the future. Did you achieve all the targets you had set for the business? If not, use the data you have collected to see what needs to be altered in order for these targets to be achieved.
Hitting your targets is unlikely to be a cost-free process, so be prepared to make certain resources available when needed. Also, undertaking regular reviews will help with motivation and making changes if the progress result is not as expected.
Michael Quinn is an experienced chartered accountant and lawyer, and co-founder and director of the Quinn Group. He has spent years advising industry leaders and business owners about their financial situations and decisions, assisting them in maximising their potential and their opportunities. Visit www.quinns.com.au for more information
We all understand that profit margins and revenue are vital to a company’s success. There are, however, so many other factors that determine the success of a business. For any company to improve and grow, having performance management systems can be an important way to keep track of the progress of the business. Not only do they give you information about what’s happening now, but they also provide a starting point for setting goals and implementing strategies for growth, and examine triggers for any changes in performance.
However, as organisations continue to increase in complexity, it becomes more and more complicated to identify the key drivers of organisational effectiveness. So how do we measure business performance and how do we select what to measure?
The key is to focus on quantifiable factors that are clearly linked to the drivers of success in your business and your sector. These are your key performance indicators (KPIs). KPIs will vary from sector to sector and from business to business. KPIs are at the heart of any system of performance and target setting, and when used correctly they are one of the most powerful tools available for growing businesses.
Ask yourself: what is it that drives success for my business? Be sure to tailor measurements to your specific circumstances and objectives.
Consider the following when setting goals and targets for your business:
1. Define your goals
Determine your measures for success. Your goals should be SMART – specific, measurable, achievable, realistic and time-bound. What is it you want to achieve? Do you want to increase customer retention, improve market share, penetrate a new market segment, change a perception, generate more enquiries, or reduce customer complaints?
Using KPIs, ensure that your targets will meet the specific and measurable part of the SMART goal system. You need to set challenging targets to motivate yourself as well as your employees, but remember that if you set unattainable targets you may discourage your employees.
Look over the performance data for the past couple of years to get a sense of what kind of performance boosts you’ve seen before, and this will help you determine what is feasible. Achievable goal setting flows on to realistic goals and targets. To be realistic, a goal must represent an objective towards which both parties are able to work. A goal can be both high and realistic. Finally, a goal should be grounded within a timeframe. With no timeframe, there will be no sense of urgency.
2. Determine the metrics to measure your company’s performance
Once you have identified your key goals and targets, compile a list of factors that are important to achieve success in your industry. These may include but will certainly not be limited to:
- Admin - The level of employee turnover and the age of the facilities
- Marketing - Product quality, inventory levels, advertising budget and effectiveness, sales growth, market share
- Management - Experience of staff, level of effectiveness of communication systems, access to information
Once you have identified your key business drivers, find a way to measure them. For example, if customer service is a priority for your business, then you should start measuring this. However, there are many ways to do so, such as:
- conversion rate of lead to customer
- time it takes to complete an order/job/service
- number of dissatisfied customers
- percentage of returning customers
Customer service priorities vary from one industry to another. One is not necessarily more important than the other – the challenge is to find which specific measure enables you to improve your business.
3. Identify and understand your strengths and weaknesses
A SWOT analysis is a useful tool for analysing your organisation’s strengths and weaknesses, and the opportunities and threats you face. It helps you to focus on your strengths, minimise threats, and take the greatest possible advantage of opportunities available to you.
Decide on the objective of your SWOT analysis, then research your business, industry and market, and list your business’s strengths and weaknesses, and any potential opportunities and threats to your business.
By looking at your company against your competitors, using the SWOT framework, you can create a strategy that helps you to distinguish yourself from your competitors and gain that invaluable competitive advantage.
4. Compare against benchmarks
Benchmarking is a valuable way of improving your understanding of your business performance and potential by making comparisons with other businesses in the same sector. Certain industry benchmarks are available on the ATO website, and MPA’s range of annual surveys and reports also provide valuable snapshots of the mortgage broking industry.
You can also measure the change in your business performance against a previous period or against a budget you have prepared.
5. Focus on customer retention
Finding and retaining clients is a crucial task for every business. When you’re looking for areas of your business to measure and analyse, ask yourself how much you know about your clientele. Getting a new customer is five times more expensive than retaining a current one, so you can understand the importance of customer feedback.
Work on the core product and service attributes for building customer loyalty. Businesses must focus on such issues as instilling a helpful-staff attitude, delivering on advertising promises, and providing accurate product information.
Try viewing your business from your customers’ perspective – this will keep you on track as you consider options for growth.
6. Use ratios to interpret the results
Using ratios will give you a great insight into how your business is performing. Rather than reviewing the gross profit as a dollar value, track the profit as a percentage. Using a ratio makes it much easier to spot trends and compare against benchmarks.
You can use ratios to track all income and expenses. It may also be worthwhile to track your debtor days as a percentage (how long it takes your customers to pay you), or your creditor days (how long it takes you to pay your suppliers).
7. Take action on your results
Report on trends that emerge from your findings on a regular basis – your results will help you decide what you want to do differently to change your results in the future. Did you achieve all the targets you had set for the business? If not, use the data you have collected to see what needs to be altered in order for these targets to be achieved.
Hitting your targets is unlikely to be a cost-free process, so be prepared to make certain resources available when needed. Also, undertaking regular reviews will help with motivation and making changes if the progress result is not as expected.
Michael Quinn is an experienced chartered accountant and lawyer, and co-founder and director of the Quinn Group. He has spent years advising industry leaders and business owners about their financial situations and decisions, assisting them in maximising their potential and their opportunities. Visit www.quinns.com.au for more information
