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Many golfers calculate their handicap, with the most analytical also counting their putts per round.  A friend of mine had the lowest average putts per round one year on the PGA tour – lower even than Tiger Woods.  That sounds very impressive, but my friend didn’t win any major tournaments that particular year.  He retired from the pro tour a few years later.  Though one element of his game was at the top of his profession, helping him win his share of tournaments over his career, several other metrics were not operating in concert to keep him in the game.

What is it about life that we keep tabs on everything from our IQ, credit score and cholesterol level to our investment portfolio annual return, miles per gallon and Mulligans?  Everything that we consider important in life and business is measured by a metric or key performance indicator (KPI).  Do you care more about your total weight or percentage of body fat?  Both are important.  But if your body fat percentage is low, you are willing to carry more weight due to muscle mass.

Some factors give us one degree of perspective, but without others we still don’t know the total picture or how -- or why -- it needs to change.  Metrics are important in life, school, health and sports.  How much do you use them in business to determine what is going well and what needs to change?

Here’s how SearchCRM.com defines a business metric:

A business metric is any type of measurement used to gauge some quantifiable component of a company's performance, such as return on investment (ROI), employee and customer churn rates, revenues, EBITDA, and so on. Business metrics are part of the broad area of business intelligence, which comprises a wide variety of applications and technologies for gathering, storing, analyzing, and providing access to data to help enterprise users make better business decisions. Systematic approaches, such as the balanced scorecard methodology, can be employed to transform an organization's mission statement and business strategy into specific and quantifiable goals, and to monitor the organization's performance in terms of achieving those goals.

Current ratio, debt versus equity and gross profit by inventory item are common ways of assessing the health of your business.  What is your company’s sustainable growth rate?  Do you know what really drives your company and the way to assess wise strategy? Or do you look only to sales, cash and profits as the primary indices of success?

Each business is unique in what should be measured.  Every industry has it own common KPI. In life, some metrics are common and some are unique to an activity.  Humans don’t measure their personal “miles per gallon,” but they certainly measure their car’s MPG. 

Are you measuring the results of your company in terms of productivity, profitability and efficiency – and if so, are you doing in a way that drives you to make the most significant changes required to best your competition, attract the best customers and reward the best employees?

The role of the Chief Financial Officer includes determining the most significant metrics for the company.  The Chief Executive Officer relies on those measurements to make decisions that impact elements of the metric to improve results.  If you need help gaining a perspective on what measurements you should be monitoring in your business, give me a call.  As a B2B CFO^® I specialize in helping determine the vital metrics for your company.