There’s an important business message that can be found in the movie Moneyball, one that more business owners should pay attention to.
The movie is an account of the 2002 Oakland Athletics season, and the attempt of their general manager, Billy Beane, to build a competitive baseball team.
In the film, Beane and his assistant GM, Peter Brand, attempt to build a competitive team with an extremely limited player budget.
Beane hires Brand, a Yale economics graduate, who has developed a mathematical and innovative approach to evaluating player talent.
Brand, rather than using the more commonly subjective intuition and experience approach to scouting, develops his own unique set of mathematical formulas. He uses these to bring his team from the bottom of the league to ultimately end with the A’s as the 2002 American League West title champions.
Beane’s success begs the question of whether it’s possible to use a similar mathematical approach to scale your business.
Let’s assume for a moment that you have a formal business plan, and you’ve decided that you want to double your business’s revenue inside a certain period of time.
What are Key Performance Indicators?
Although there are many steps required in order to double a business’s revenue, one of the first, and most important, elements is to establish a series of data points, otherwise known as KPIs (key performance indicators) that you can use to gauge the health of your business.
It isn’t enough to simply track revenue.
Every department has its own set of KPIs that can be used to gauge the health of the department, and when you view the data for all departments, in aggregate, the data points begin to tell a story. Following the story will help you better understand where to go next and will help uncover potential issues.
Let me provide a simple example.
Let’s say you run a $5 million elevator repair and service business, and let’s use the accounting department as an example.
Some of the things you can track in accounting include your total accounts receivable and then AR for terms of 0 to 30 days, 30 to 60 days, 60 to 90 days, and 90 days and older.
Let’s Look at an Example of KPIs
What we see from the data in the chart above is that the % of AR has gone from a high over 30 days of almost 22% to a low of 10.8%.
You can provide your accounting department manager with a benchmark and suggest that you would like your AR % over 30 days to not exceed 5 or 10%.
It doesn’t much matter what the number is. The point is that you track this information, report on it frequently, and set a benchmark that you expect your department, and team, to work toward.
It’s possible to report on accounts payable in the same way.
The company can report on the number of elevator repair maintenance contracts they’ve sold, both by quantity and by dollar volume. It’s possible to report on the total percentage of recurring revenue as it relates to overall business revenue.
Accounting is an easy department to work with because there’s no shortage of metrics that you can track.
The items I’ve discussed so far aren’t all that unique and certainly don’t approach the level of business intelligence breakthroughs that Billy Beane had in the movie Moneyball.
But my point, so far, is that it is possible to build a detailed set of KPIs, by department, that you track. Once you begin tracking this data, you will begin to see a story.
KPIs and Data Points Tell a Story
One data point, on its own, doesn’t tell much of a story.
But imagine you track hundreds of data points, spread through each department. And you hold the department heads responsible for reporting on, benchmarking, and accountability for those data points.
The onus isn’t necessarily on you, the business owner, to fix the issues. Rather it’s on your department head to come up with solutions, should the data go askew.
Data in the Sales Department
The sales department is probably the easiest department to track data, and this is where Billy Beane’s concepts come to life.
- How many calls did your inside team make today? Last week?
- How many appointments did the inside team book?
- How much quoted business was the inside team responsible for?
- How much closed business was the inside team responsible for?
- What is the closed percentage of the inside team’s opportunities?
- How much quoted business did each sales rep quote last week? Last month? Last quarter?
- How many open opportunities does each sales rep have?
- How many dollars in open opportunities does each sales rep have?
- What is the average dollar size of each rep’s open opportunities?
- What is the close percentage of each sales rep’s opportunities?
I can probably list another 20 metrics that you can track for your sales department.
How much of the above are you tracking?
When you understand your KPIs, it makes it easier to benchmark and grow your business. More importantly, once your teams start to track their data, and you work with them on finessing their data points, the canvas starts to complete.
It’s analogous to taking an artist’s painting and eliminating all colors but red. If I were to do that in the picture to the left, you definitely wouldn’t have a complete painting. The same with the color blue, green, and so on. When you combine all the colors together, you have a beautiful painting.
The same happens with your data.
One data point doesn’t tell a story.
Hundreds of data points, when combined together, help you paint a complete picture of what’s going on in your business.
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