The ongoing monitoring of your service business operation over time is essential if you are to be successful. Here is a collection of metrics that I have developed or a number of service based businesses I have been involved with.
Some of these may not be applicable to your particular business, but select the ones that you can use right now and ‘lock them in’ as key performance indicators (KPI’s), and monitor them regularly.
- Gross margin compared to budget (%)
- Gross margin compared to last period (%)
- Sales compared to budget (%)
- Sales compared to last period (%)
- Expense decrease to budget (%)
- Expense decrease to last period (%)
- Direct cost decrease to last period (%)
- Direct cost decrease to budget (%)
- Number of customers (active) compared to last period (%) Increase in customers (active) over previous period
- (%) Increase in customer invoice value (%)
- Average sale per customer $ (month)
- Average sale per customer $ (year to date)
- Average sale per customer $ (compared to previous period) Materials to sales (%) compared to last period
- Labour to sales (%) compared to last period
- Material dollars in sales generated
- Labor dollars in sales generated
- Available billable time vs actual billable time
- % recoveries by employee to budget
- % recoveries by employee compared it to last period
- Revenue generated per employee per week, quarter, year
- Revenue generated per employee to budget
- Percentage rework to budget
- Percentage rework to previous period
Each one of these metrics can be used to measure the performance of a serviced base business. Many operators only focus on the net profit outcome and not on these indicators, and wonder why the result is not what they expected?
What you need to do is focus on the 'cause' and not the 'effect'. By establishing some key metrics (key performance indicators) like these in your business, you can very quickly see the 'cause' of the problem and implement some corrective action.
Think of these metrics or indicators as pulse checks for your business, and revisit them regularly, at least once per month and take the necessary corrective action if required.
These key performance indicators should be linked to the employees whose job it is to produce these results for you (these would usually be your revenue generators). By doing this you will have to basis for a meaningful discussion when its time to review the performance of these employees.
Spend some time sitting down and coming up with some performance metrics or critical success areas (pulse checks) for your business. I am sure the list above will get you thinking about how to measure the growth of your service business.
Always remember the golden rule - if you can't measure it, then you can't manage it...