Measures are like goals: they should be specific, time-bounded/relate to a specific period and achievable. “You can’t manage what you don’t measure,” declares an old shopkeeper we know.
Years of working with staff and motivating them to meet or exceed business goals has left an indelible mark. Measures capture the results of our experiments, in science and work, and drive continuous improvement. We are increasingly dependant on numbers for everything.
We measure our health in numbers (blood pressure, body mass and cholesterol) and how much we eat (grams or calories). We compare and contrast things in numbers. What’s your IQ or emotional intelligence? And not surprisingly, we assess company success with numbers – sales, profitability, ROI, P/E Ratio and so on.
How does this relate to sales?
There are various frameworks for determining what your company should measure. Most have merit, but some clear advantages over others that make them worth considering – in terms of their state of development, ease of use, and the direct relationship they have to common business practices. The ‘Balanced Scorecard’, for example, a tool developed over a decade ago to address all areas of a business and make things meaningful for people, has become increasingly popular.
From a sales perspective you should strive to keep things simple. In terms of our own model, examined over the last few months, there are measures for Customers, the Market and / or Products and of course Space.
Early on in this series we suggested that only a few customers go home happy. It’s critical therefore you measure the right things e.g. the number of customers you have (closely equates to the total number of transactions), the value of these transactions i.e. sales per day, week or month compared with similar periods i.e. yesterday, last week or the same time last year.
Analysing your numbers
When you analyse these measures don’t forget to factor in specific quality information like: When was pay-day last month and what events / promotions were running at the time? You want to compare apples with apples.
If your business involves selling goods you should try to measure the average customer spend (ACP) also known as the customer ‘basket’. This calculation is derived as follows:
Sales (divided by) = R0.00c (ACP)
Number of transactions (or customers)
It’ll be a lot higher in a supermarket or clothing outlet (over R250 perhaps) or very low in a garage shop (below R18) where purchases are mainly cool drinks and sweets. Measures should always be expressed in ‘hard numbers’, either as R0.00c or %s.
With respect to Products or Promotions you should measure the growth in customers (increases in the number of transactions), customer complaints / compliments relative to specific products (compared to the total number of customers), the sales value of your promotions (distinct from overall sales) and other telling measures like sell-off rates.
Sell-off rate = Sale of a new or promotion line (daily) x 100 = %
Original stock value 1
The higher the sell off rate expressed as a percentage the more successful the new line or promotion.
Measures for Space are a little more complicated especially if you only have a very basic point-of-sale (POS) system. But if you know what product you have in designated areas e.g. hot-spots, gondola front-ends or specific display cases and the sales of those products it’s possible to calculate the takings per metre (TPM) and the takings per head (TPH) (Sales divided by the number of employees), which is a very good productivity measure.
Obviously you don’t want to keep slow sellers in valuable space for long and neither do you want to keep good sellers hidden. TPM helps in identifying not only good sellers versus poor sellers, but also areas of a store that customers shop more frequently. TPH helps in planning staffing requirements.
If TPH falls suddenly you should be looking to cut back on staffing or re-allocate them to better performing areas. Conversely if your TPH rises suddenly you may want to consider taking on more staff so that your overall customer service effort is sustained.
Who gets to create measures?
Whatever the nature of your business it’s critical to involve staff in the identification and measurement of measures. You should identify a mechanism for making them meaningful for staff. In our journey through garage shops, supermarkets and factories we’ve seen all kinds of balanced scorecards, steering wheels, thermometers and other devices hanging from walls in operational and staff areas. Whatever you use be sure to communicate all your measures to staff. Measurement should be a transparent process with no unpleasant surprises!
It’s best if measures are ‘hard’ numbers, but they can also take the form of ‘milestones’. Should you want to measure the progress of one of your processes e.g. visioning or strategic planning you could use milestones instead. At a point (specific day, week or month) we will have communicated our business vision to everyone or all business units will have completed their strategic planning process. Make sense?
Finally, make sure you constantly refer to your measures, ‘walking the floor’ and ‘walking the talk’ making small improvements and adjustments as suggested by them.
Measures are critical, but they won’t have much impact unless they’re cascaded all the way down to front-line employees. The case for cascading is straightforward: Do you want 10% of your employees working toward business objectives or 100%?