...because you can only manage what you measure

It was 2009, and sales were coming back from the slump of 2008. With the intent of driving that opportunity, we began to invest more heavily in our advertising and marketing budget. We were doing yellow page listings, magazine ads, radio commercials, sponsorships, along with some Google and Facebook ads, and the costs escalated rapidly. An advisor I was working with at the time asked a very pointed question. “How do you know if it’s working? How can you tell which investments are paying off?”

Thus began in earnest my quest to measure the effectiveness of each advertising channel into which we were pouring money. And our new mantra became, “We won’t spend money on advertising if we don’t have some way of measuring its success or ROI (return on investment).” With the incredible complexity (or should I say “randomness”?) of our advertising, this initially looked impossible. Eventually, we slashed it all and started building it back piece by piece, with some method in place to measure the results for every campaign we launched.

The principle here is that you can only manage what you measure. In the startup phase or in a very small business, this can at times simply be a gut check, an instinct without actual hard data. As a business grows, however, this no longer works. Accurate, dependable data becomes essential to the health of a business. For large companies this has usually been created and managed through CRM (customer relationship management), ERP (enterprise resource planning) and various other systems critical to a particular business. As the explosion of options continues in the world of software and technology, more of these become available to even small businesses. However, they are not required for basic management in businesses under a certain size, and most do not realize how much they need good data for effective management.

What is critical is that you cannot manage what is not being measured—somehow, in some way. While we ran our accounting through QuickBooks until quite recently, most of the data we got from accounting software only told us where we had been—it was only a rearview mirror of sorts. It’s hard to drive forward looking only in the rearview mirror. Drivers need reference points out ahead, signposts advising about future conditions, traffic lights to avoid collisions and the occasional speed bump to force them to slow down.

There are many different business models: some companies are manufacturers who wholesale their product. Some are retailers with no manufacturing operations. Others work only in distribution. Increasingly there are very specialized operators focusing on only a small facet of the shed business. There are also companies that are vertically integrated and operate in all facets of the industry, from manufacturing to retail, distribution, service and account management for rent-to-own contracts or financing programs.

This complicates the standardizing of KPI’s (key performance indicators) that can be shared across the industry but shouldn’t restrict you from deploying the most basic kind of KPI’s – those for your company, measuring your company’s performance against historical data. This is the only way to know whether you are improving effectiveness and efficiency, or whether you are in a stall.  In future articles, I hope to dive more deeply into some of the essential areas to measure in a shed company.  For now, here are a few quick pointers to help you begin measuring what matters.

Start with a pain point. Ours was sky-rocketing advertising spends without any way of measuring their effectiveness. For most manufacturing companies, the greatest challenge this past year has likely been the cost of materials. The extreme pricing volatility coupled with supply-chain challenges is unprecedented in the past fifty years. And if you weren’t measuring the cost of materials for your products, you likely had a nasty surprise along the way. It’s not fun building sheds that have been sold for less than they cost to build. Each company has pain points or areas of opportunity. Identify one or two in your particular business.

Establish some metric that will help you measure performance in that area. If it’s too complicated, it likely won’t happen unless you already have a very disciplined culture around this. Digital advertising can be quite easily tracked these days. It’s more complicated with magazine ads, radio commercials and TV campaigns, but it can be done.

One of the critical pieces to our measuring system was Excel spreadsheets in a shared Dropbox folder where every responsible party would update his data daily. (Google makes this even easier with Sheets.) This included such data as incoming phone calls, cars on the lot, quotes written, and deals closed. Each store had a sheet, and the data was compiled on a master sheet that I could simply glance at daily. It became easy to track traffic trends, notice spikes and declines, and make some association to specific campaigns we were running at the time. This is quite basic, but it’s a start. We developed much more sophisticated methods as time went on.

Manage based on the data you have. Act as though it matters. Try things and watch the results. Test different strategies or tracking different data at different locations, then implement the most successful at all locations. Keep asking questions around the validity of the data you are getting. Are there variables for which you must account? Is there something unnoticed influencing the data? Are the expectations clear as to how the data is compiled? For example, if you are counting traffic at a store, do you count the car that only circles through the lot? The UPS truck? The lady who stops to ask if you ever donate a shed to a worthy non-profit?

You can quickly get lost in the “weeds” of details. Remember that early on, the most critical thing is consistency. Consistency allows the data to be valuable.  Developing the habit of measuring will stand you in good stead. Measure what matters and begin to manage around the data! Start today with your greatest pain point or an area of opportunity.