This article is an excerpt from the Shortform book guide to "Clockwork" by Mike Michalowicz. Shortform has the world's best summaries and analyses of books you should be reading.
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What are performance metrics? How many and which performance metrics should you track?
Performance metrics indicate whether your business is meeting its goals and allow you to quickly notice early signs of issues so you can address them before they develop into crises. It’s important to monitor them regularly and make improvements any time a metric fails to meet its benchmark.
Here are some tips for establishing effective business performance metrics and benchmarks.
Tip 1: Establish Five to Eight Metrics
Michalowicz recommends aiming for five to eight business performance metrics. You need at least five metrics to fully monitor all aspects of your business, but it’s overwhelming to keep your eyes on more than eight performance metrics.
(Shortform note: There’s no consensus among business experts about the optimal number of metrics. In The Ultimate Sales Machine, Chet Holmes argues you should keep a list of every possible metric that drives sales, from the number of inquiries you receive to the number of visitors to your store. That way, you can learn which efforts led to which sales numbers. In Traction, Gino Wickman argues for a middle ground, claiming that 12 metrics is the optimal number. This lack of consensus suggests you may need to experiment with different numbers of metrics to find the optimal number for your business size. For instance, a business with nine employees might have greater capacity to track metrics than one with only four.)
Tip 2: Set Achievable Benchmarks
Michalowicz’s second tip for establishing metrics is to make each metric’s benchmark achievable rather than ambitious. Its purpose is to indicate a problem, not indicate when your business exceeds expectations. For instance, an average star rating for user reviews between 4.5 and five is achievable, while an average rating between 4.9 and five is overly ambitious.
(Shortform note: In Measure What Matters, John Doerr offers the counterpoint that some of your benchmarks should be achievable, and others should be ambitious. He claims that striving for several ambitious benchmarks motivates you and your employees to challenge yourselves.)
Tip 3: Make Each Metric Easy to Spot
Finally, Michalowicz suggests you ensure each metric is easy to spot. That way, you don’t waste time digging through information to assess whether your business is operating smoothly. For instance, an average star rating for user reviews is an easy-to-spot metric: A single glance at this average rating tells you customers’ average satisfaction.
One way to ensure each metric is easy-to-spot is to involve your teammates in reporting metrics. After you’ve established your metrics, assign your teammates the responsibility of ensuring these metrics’ benchmarks remain easy to spot and up to date.
(Shortform note: How can you ensure your teammates regularly record easy-to-spot, up-to-date metrics? In Traction, Gino Wickman suggests you create a company “scorecard” that displays every important metric for your team to review at a weekly meeting. This scorecard should include both the benchmarks you’d like to achieve and the data reporting what you did achieve. Ensure each metric has one person who’s responsible for tracking it and updating the spreadsheet in advance of the meeting.)
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- How you can take a four-week vacation as a small business owner
- How to avoid burnout as an entrepreneur
- Why a hands-on approach to leadership is usually not the best method
