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Your Key Metrics

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So far you’ve figured out who you are going to target, what their needs are, what you’re going to offer them, how you’re going to reach them, how you’re going to profit from them and what you’re going to need to deliver all that.

 

So, the question now is: How are you going to know if you are succeeding? What will you measure? Click To Tweet

You have the ability to collect a lot of data, and measure almost anything. If you are big enough, I can probably give you at least two dozen metrics that you needed to keep track of, in order to manage a marketing team.

But you’re not that big, you are a sole practitioner and you’re stressed for time and resources. You need to track as few metrics as possible.

You need to decide what the one thing you must measure is. The current cutesy phrase is “0MTM.” One metric to measure. I’m going to give you some more, which you’ll use later in the course to evaluate your practice and your services.

In his article “The Only KPIs Your Firm Will Ever Need,” Ron Baker of Verasage Institute proudly claimed that there were only three KPI’s you need to pay attention to in your practice. I think he missed the mark, and there are six, maybe seven or eight, depending on how you count.

Sure, the three he proclaimed are leading indicators of client satisfaction, but at least one of them, the “High Satisfaction Day” is absolutely too amorphous for a small local practice’s purposes.

Small local practitioners, even those with multi-million dollar revenue aspirations do not have the luxury of brainstorming feelgood sentiments.

If it were you, would you want to sit there and say “I think today was a good day,” or would you rather say “My revenues are up because I not only added three new clients, but because I also increased share of wallet with eight clients this week from two new services that I was able to introduce ahead of my competitors, while still being able to increase my margin, and continue to delivering work product and regulatory filings on-time and ahead of schedule.”

There, in that statement, you have it, six metrics.

At your stage in the game, the most important,
(1) Gross revenues, in the form of new clients, and
(2) Increased wallet share from existing clients.

Another important one, profitability.
(3) Increased margins.

Reputation as an innovator.
(4) New services introduced (and, adopted by clients).

And, client satisfaction.
(5) Delivered work product on time, or ahead of schedule, and
(6) On budget, without missing any regulatory filings or notices.

Baker bases his selection on the KPI’s the book, From Worst to First, by Gordon Bethune, who detailed how he was able to turn around the failed airline Continental Airlines by basically tracking three leading KPI’s, known as the “Triple Crown Criteria” in the airline industry:
(1) On-time arrival
(2) Lost luggage
(3) Customer complaints

What made these three KPI’s leading is that they measured success the same way the customer does, and that is the point Baker was trying to make, because ultimately, the success of any business is a result of loyal customers who return.

Baker reminds us that none of the three indicators would ever show up on a financial statement, but, as the airlines have learned over the years – by testing the theory – they have a predictive correlation with profits.

Baker goes on to introduce what he considers the three most important KPI’s for professional service firms, (1)Turnaround Time, (2) the Value Gap, and (3) a High Satisfaction Day.

This last one I’m not sure about. It appears he is making note of the feedback you and your firm get in the form of landing a new customer, achieving a breakthrough on an existing project, receiving a heartfelt thank-you from a customer, or any other emotion of exhilaration that makes you happy you got out of bed in the morning.

Sort of “touchy-feely” and hard to measure.

Now compare Baker’s KPI’s from above to what most firms are measuring now – billable hours, utilization, realization, write-downs, write-offs, and other internally-focused metrics. According to Baker, these metrics have zero predictive ability when it comes to future customer behavior. They are lagging indicators, not leading. And, he wants you to totally stop measuring things that don’t matter, and focus on what does. He claims his three KPI’s will work in any professional services firm.

I don’t think so.

You need internal KPI’s just as you need externally observable KPI’s. You need to be able to understand what is causing the lowered KPI’s, and you need to be able to set dollar goals.

Dollar goals.
(1) Gross revenue,
(2) Share of wallet, and
(3) Margin profitability.

Client satisfaction.
(4) On-time delivery (no missed deadlines),
(5) Full regulatory compliance (tax filings, etc.)

Market reputation and positioning.
(6) Innovativeness (new and breakthrough services introduced), and
(7) Client adoption of new services (see #2, above).

You can throw in a few others like Client Churn and Average Number of Billable Services Adopted Per Client, but don’t get too carried away. For now, if you’re just starting with this, don’t get too tied up in KPI’s. Start off with the “OMTM.” You’ll get more of an idea about how to use the others as you progress through the course.

If you could measure only one thing, what would that be?

On the surface, it’s a simple question that warrants a simple answer. But, do you really have a simple answer? More importantly, you need to decide what metrics you’re willing to ignore.

The rule of thumb for answering this one metric question is that your primary metric is what you need to deliver, your goal.

As a sole practitioner responsible for the growth of the practice, your main metric is probably number of clients, gross fees, or revenue. Any other KPI is not worth keeping track of at this time. You’ll get to them later.

The OMTM idea isn’t the ideal solution in today’s marketplace, but for a lone practitioner, it makes a lot of sense as an exercise in focus and prioritization.

Once you begin to think in terms of eliminating all the noise, you focus on what metrics are really important to your bottom line.

As you grow, you can add additional metrics. Keep the following metrics in mind as you grow:

  1. Brand Awareness. How well-known are you in the community?
  2. Churn. What percentage of your clients do you lose each year?
  3. Conversion Rate. What percentage of your presentations result in a signed engagement letter?
  4. Customer Lifetime Value. How much revenue will you eventually get out of your average client?

We’ll soon get into some useful KPI’s that will give you that information, as you learn how to grade your clients and services and fit them with your Strategy and Business Model.

But, for now, there’s not much point in tracking lead generation. If you have a little bit of drive you can get as many leads as you want. The real challenge is getting qualified leads, folks that are interested in your services.

Ye Olde Red Herring
Ye Olde Red Herring
Website traffic is another Red Herring, the number of visitors to your website doesn’t matter if it doesn’t lead to an increase in the number of qualified leads. If you’re not an SEO professional, you shouldn’t be trying to do that kind of work. If you hire an SEO professional, and they are not generating qualified leads, then you need to fire them.

If you are running an e-mail marketing campaign, then you already have a group of leads, and your job is to generate demand. So we’re back to the revenue metric.

And, that’s about how it goes with small practice metrics. Until you’re large enough to worry about anything else, just track your gross revenues or number of clients.

Until you're large enough to worry about anything else, just track your gross revenues or number of clients. Click To Tweet


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kirks-sig

 

Kirk

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