Benchmark and Measure Success. This is a critical factor in your Ownership Transition Plan which includes the following issues:
- Define and measure success;
- Identify critical industry metrics;
- Measure sales activity and effectiveness;
- Track revenue from new or returning customers or markets; and
- Measure and evaluate customer retention.
In the last six weeks, we have discussed how owners can methodically build the business value necessary to achieve a business ownership transition on their terms to achieve the lifestyles they desire.
- Create a written value-building plan;
- Address business fundamentals necessary to protect the value we are creating;
- Value Take action to diversify the customer base, solidify the marketing message and avoid unnecessary taxation;
- Systemize operations including collecting customer feedback and diversifying vendor relationships;
- Leverage human resources to improve the productivity, efficiency and quality of employees;
- Use financial measurement and management techniques.
Now that we have all of this in place we need a system for benchmarking and measuring the success of all of these factors we have built so that we know how we are progressing and how we can improve.
Define and measure success. Driving your business toward a higher value requires a constant focus on critical elements of success. A clear path to success with specific action steps and benchmarks dramatically increases your ability to achieve your goals for growing business value.
Identify critical industry metrics. Look outside the company to see how it stacks up against its competitors. Every industry has its own unique measurements for performance expectations. In some industries there are firms that conduct audits of performance that are shared anonymously among participants. If your business out-performs industry norms, it is much more likely to develop higher value or command a higher purchase price from a buyer. Using industry metrics gives you a set of benchmarks to compare your companyâ€™s performance to other businesses with similar products, services and customers.
Measure sales activity and effectiveness. Whether your companyâ€™s sales activities are geared to retaining a small number of customers or to building a robust customer base, your role as the owner is to:
- Set goals and objectives for the results of sales activities;
- Communicate those goals;
- Make resources available to facilitate achievement of the goals;
- Reward people when they achieve or exceed your expectations; and
- Hold people accountable when sales activity is insufficient or unsuccessful.
Do the sales goals you have set contribute to building your companyâ€™s value?
Track revenue to new or returning customers or markets. Your customers represent the ultimate source of strength and success for your business. Without them, you have no business. Do you have an accurate understanding of your customer base and how each customer supports your business so that your strategic decisions support the future growth of your company? We have a number of ideas on how you can collect and use the information you need.
Measure and evaluate customer retention. Most business owners believe that returning or repeat customers require less expense, fewer resources and less effort to generate revenue. Similarly, third party buyers seeking an acquisition consistently attribute higher value to a business that demonstrates healthy customer retention than to one that does not. Does your company systematically track, document and report current customer retention data? How deep are your relationships with your key customers?
We find that many owners focus more on sales to new customers (and perhaps on retaining and servicing existing customers) than they do on making existing customers a major source of new revenue for new services, tools, products, etc. Printer manufacturers nearly give away their printers so they can sell high-margin ink. Are you sure you know what business you are in or should be in? Most of our business comes via referral â€“ is this a significant source of your business? Should it be? Could it be?
Does your company offer services that not all of your customers use or arenâ€™t even aware of? Could you provide a new service, tool or product that existing customers would purchase because it is compatible with a service, tool or product that they already buy from you?
.We hope these last several weeks have given you lots of ideas about increasing the value of your business. Weâ€™ve only covered the value-building issues common to most companies here, but there are others that will apply to your unique business.
If youâ€™d like to discuss ideas about building value, please give us a call. Our mission is all about working with business owners on these critical issues. It is what owning and running your company is all about: building its value so that you can transition ownership one day on your terms so that you can live the post-business life of your dreams.