(Mis)Adventures in Dashboard Metrics
Updated: Oct 13, 2018
Dashboards have been a hot topic in business literature lately. Recommendations that business owners implement a dashboard for their business abound; however, advice on how to implement a dashboard is scant.
I can relate to this dilemma.
Occasionally, peers and potential investors would ask relatively simple questions about our company like, "What percent of your customers are repeat customers?", "What is your breakeven point?", and "What is your customer acquisition cost?" At the time, I was only slightly embarrassed that I didn’t know the answers. Regretfully, this led me to dance around the questions a bit and soon forget about my ignorance.
I was good at my trade and at finding team members were too. That's all I thought I needed to know.
The gap in my business understanding became more evident during my MBA studies where I learned the metrics that managers of large companies use to drive growth. I was elated at the insight I could extract from metrics that use both my Income Statement and my Balance Sheet (i.e. Days Sales Outstanding, Days Payables, Days Sales of Inventory, Return on Assets, Return on Equity, etc.)
I began to build a dream dashboard and selected metrics that were the Key Performance Indicator (KPIs) of our business.
A pattern emerged as I classified metrics as either operating or financial. There were phenomena that occurred much more frequently than, and well in advance of, the traditional metrics I had learned about in business school. Certain real-life events would first impact our operating metrics, then our financial metrics, and finally our profitability and cash flow. Operating metrics, which were often specific to a company or industry, were earlier indicators of what was actually happening in my company. I needed to get them into my dashboard too.
We started measuring conversion rates of each sales person, sales product ratios and margins, breakeven, customer acquisition cost, and even a unique Growth Index.
Our excitement grew. Our dashboard was marvelous.
Populating and formatting this dashboard, however, took enormous amounts of time we didn’t have. So it was rarely populated. Our management meetings eventually digressed back to throwing out ideas based on emotion.
After another acute crisis, we decided "never again" and resolved to watch our data in real time. Although we found numerous applications which tracked financial KPIs, unless we implemented a large Enterprise Resource Planning (ERP) system, we couldn’t find any that tracked operating KPIs.
For surprisingly little cash we were able to have a custom cloud-based platform built that: extracted data from both our accounting system and other applications, aggregated it, and populated our dashboard in real time. Decisions were no longer made using our guts.
Some metrics need to be reviewed once per month, some once per week, and some every day. While the level of dashboard sophistication will vary with the size and type of business, every business should have one - and monitor it regularly. Too many business owners have no dashboard at all. Even those with revenues into the tens of millions of dollars, who have managed to do well by either chance or exceptional talent, could perform better. Even their finely-tuned gut-based market barometers need tangible metrics as a basis for wise decisions.
Any business owner who is managing from their gut rather than their numbers should strongly consider:
1) Hold at least a half day white-boarding session with your management team to flush out which KPIs are the drivers of the business
2) Segment the KPIs so that each team member has a lever they are able to control and receive rewards for moving in the correct direction
3) Assign the accountability for preparing the KPIs to a specific team member (it might be you)
4) Schedule the next six months of sit downs with those on your team who can control KPIs. Stick to this schedule.
5) Use meeting time to diagnose what the metrics are telling you. Set reasonable, dated goals for steering them. Watch your productivity grow.