April 27, 2015
Your business numbers are sometimes difficult to make sense of, but as long as you know what to look for, what to compare and benchmark against, and what it means to your business, you can leverage the power of these numbers and find your equation for success for the remainder of 2015 and beyond.
At this point, the first quarter of 2015 has passed and (should be) on the books. While economic indicators can help us adjust our predictions for the rest of the year, you might also have formed a set of assumptions that help you analyze the first quarter of 2015 and how it compared to your yearly forecast or plan.
If you are concerned with your first quarter results, or happy and want ideas on how to capitalize on your success, call me to discuss your options and we can start putting plans in place today for future success.
On your own, you can begin the second quarter with a focus on external assumptions to help you accurately predict the success of your plan or forecast. Start by taking a look at the Key Performance Indicators (KPIs) you, ideally, set at the beginning of the year.
Key Performance Indicators
So now that your 2015 plan is in motion, how are you measuring against your set performance measures, or KPIs? KPIs help you monitor progress throughout the year. Determine how and whether the KPIs need to be adjusted and how your first quarter measured up. KPIs should give you an indication of what makes the most sense to track for the remainder of 2015 and what to stay focused on while executing the plan.
There are two types of KPIs: Leading KPIs and Lagging KPIs. Leading KPIs are indicators that you and your team can still affect or contribute to improved performance in 2015. Lagging KPIs are the results of your Leading KPIs, such as the number of prospects or quotes per week, conversion rate of prospects to customers, customer retention ratio, customer repeat sales, or up-sell numbers, etc. Examples of lagging indicators include weekly sales dollars, monthly gross margin, monthly operating income, etc. These are good indicators of the successes and challenges of your first quarter this year.
Do you consider economic outlook (or forecast) when establishing your number assumptions? The growth rate you assume in sales will be impacted by changes in the economy throughout the year (unless your business is not, in general, impacted by the economy).
As a rule of thumb, there are two areas to leverage for an accurate economic outlook: Historical Data and Forecast Data:
Historical macro-economic data: To find general macro-economic historical data, start with the Federal Reserve Bank (FRB). The FRB provides data sets such as Gross Domestic Production (GDP), Housing Prices, Housing Starts, Consumer Price Index (CPI) or inflation, unemployment, building permits, vacancy rates, etc. (For industry specific data, such as the Industrial Producer Price Index (IP), better information is available at the U.S. Bureau of Labor Statistics site.) Do an online search for the FRB in your area, and you’ll find national data as well as local data. For global operations, visit World Bank Group, which provides similar sets of data to what you would find at the Federal Reserve Bank.
Forecast macro-economic data: When external factors change, knowing annual macro-economic forecasts will help you track the economy and get ahead—and avoid being blind-sided.
The industry you are researching will determine action. For example, higher education typically goes against the economic cycle; when the economy is down, more people enroll. On the other hand, the new housing industry tracks with the economic cycle; when the economy is good and interest rates are low, people are more inclined to be on the move and feel the desire to buy. For forward-looking macro-economic data, The Wall Street Journal surveys world economists on a regular basis and gets their predictions. On their website, you can find three-year predictions for GDP and other factors.
How do you benchmark? It’s best to have numbers from past months, quarters, and years, number goals, and exit plan objectives to mark your progress. Your KPIs should help you benchmark against your own industry, region, etc. Otherwise, you cannot know whether you are ahead of or behind the industry curve. Without regular benchmarking, banks and financial institutions might not listen when you need them.
It’s just smart to get familiar with your numbers so there are no surprises.
The second quarter of 2015 is off and running, so find a way to leverage the power of numbers and get closer to your own target numbers. This set of numbers could help you sustain or increase your market shares, as well as cost effectively execute and reach your 2015 goals and objectives—and find your best equation for success. AMA is here to help.