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Key ratio analysis: A crucial part of your management tool kit
If you’re a small business entrepreneur, key ratio analysis should be a crucial part of your management tool kit:
Key ratios measure performance. If you don’t measure it, you won’t know what you’re doing well and where you have room for improvement.
By spotting patterns or trends in key ratios you can develop ideas for how to do things better.
With the right key ratio analysis and management reporting in place, you'll find it much easier to run your small business successfully.
The problem is that many entrepreneurs don’t have a financial background — they can’t be experts in everything after all. They may not be aware of all the ratios and metrics they could capture and analyse. And they may not appreciate how they can use those metrics to generate better business performance.
If you’d like to gain a better grasp of key ratio analysis, this article is for you. I’ve covered many of the most commonly used business ratios. I’ve explained how to calculate each ratio and what the ratio is telling you.
Here’s the list of areas I’ve touched on in this article:
Customer data analysis: using customer analytics to make more sales
Collecting and analysing data on your customers in order to generate ideas for improving your business performance is known as ‘customer analytics’.
Here are some of the metrics that managers most commonly study when applying customer analytics to their business:
Sales per customer. Either for customers individually or for your entire population of active customers, measured over a given period (e.g. the past year).
Average transaction value. The amount that customers spend with you on average each time they buy, measured over a given period, either individually or on average.
Purchasing frequency. The number of times that customers buy from you in a given period, either individually or on average.
Share of sales to new customers vs share to existing/returning customers. Changes in this metric can signal that your rate of new customer acquisition or your rate of customer churn requires investigation for potential weaknesses.
Customer retention rate vs customer churn rate. If your customers are churning (i.e. not returning to make repeat purchases), this is a lost opportunity. It’s much more expensive to win new customers than sell to existing ones.
There are two main benefits from applying analytics to your customer data:
You can build a data-driven understanding of which are your most profitable customers. With that knowledge you can focus your product/service design, marketing and sales efforts on winning more of your best customers and de-prioritise your effort with lower-value customers.
You can analyse changes in customer behaviour trends. By identifying changes in trends early on you can give yourself time to adapt your business to emerging opportunities or challenges.
One of the simplest and most common ways to analyse your customer data is to rank your customers by your chosen measure (e.g. sales per customer over the last 12 months). Then look for patterns among the customers who are giving you the best results (e.g. who are buying the most from you).
Customer analytics is a big subject on its own. If you’ve not tried analysing your customer data before and it sounds like something you want to dig into in more detail, read our in-depth article on how to use customer data analysis to make more sales.
Customer satisfaction: measuring happiness
It hardly needs saying, but keeping your customers happy is a key part of running almost any business successfully.
Fortunately there are lots of metrics that can tell you if you’re doing a good job and highlight opportunities for improvement if you’re not. Here are a few of the best ones.
Customer complaints
If a customer complains, the first thing to do is apologise and fix their problem. The second is to capture the complaint in your customer records. You can’t manage a problem if you don’t measure it.
Bear in mind that many problems look like they are caused by a one-off human error when in fact they’re caused by the failure of a process or system to work properly. By analysing the frequency and nature of customer complaints you can spot patterns (i.e. something going wrong repeatedly) and fix the underlying cause so it won’t happen again.
You can measure customer complaints using a simple frequency measure such as complaints per month. But if your business is growing fast that’s not going to be very insightful. In this case, try measuring the rate of complaints relative to your number of active customers or your number of unit sales.
Customer review scores
If it’s appropriate, you should encourage customers to provide reviews or testimonials. But don’t just admire your reviews — record and analyse them. Follow the trend for positive or negative changes. If your average review score dropped this month from, say 4.5 to 3.9, it could be an early sign of something going wrong operationally. You should investigate promptly.
Customer referrals
There are few things better than winning a new customer thanks to a recommendation by an existing customer. Again, don’t just congratulate yourself — record the referral. Generating positive referrals should be part of your marketing strategy and by analysing how often you gain referred clients you can measure whether your tactics are working.
Customer satisfaction surveys
You can measure customer satisfaction directly by simply putting the question to your customers. Most people are quite happy to share feedback — we like it when someone takes an interest in what we think and bothers to ask us what they could do to improve. Provided you ask politely and don’t make the process to time consuming you’re very unlikely to offend anyone.
You can run a customer satisfaction survey in various different ways. One cheap and simple tactic is just to send an e-mail with a link to a dedicated page on your website. If the survey is quick that’s all you need. If you want to conduct a detailed survey you might thank participants by offering them a small reward (e.g. a discount off their next purchase) in exchange for taking part.
The trickiest part about surveying your customers is to ask the right questions. That’s not as simple as it might seem. Some of the most important issues are:
Clarity. Be sure that the questions and the answers you’ll get are only capable of being interpreted in one way. If the results aren’t clear, you’ve wasted your time.
Neutrality. Be careful to avoid leading questions. A leading question is a question that subtly points towards one answer over another, usually without intending to. It’s a good idea to get an independent view of your questions before you go live with the survey.
Actionability. Make sure you’ll be able to act on the answers you get. Don’t ask about a topic if the customer is likely to suggest things you don’t have the power to change or which would take you completely outside your chosen strategy.
Customer profitability analysis: which strategies will bring you the best customers?
The best marketing approach for your business is usually the one that brings you leads and converts them into paying customers in the most cost-effective way.
To find the best approach you need a sound grasp of the economics of marketing. This involves understanding the two key building blocks that determine the profitability of any marketing initiative. They are:
Customer acquisition cost.
Lifetime customer value.
By breaking the marketing process into these two components, you’ll be able to analyse whether your marketing strategy is capable of delivering strong financial results. That’s to say, it will show you whether or not your strategy is likely to bring you profitable customers.
Customer acquisition cost
Customer acquisition cost is the total amount of money you spend, on average, to win a new customer (i.e. to persuade someone to buy from you for the first time).
Here’s how to calculate the metric:
Customer acquisition cost = Total spend on acquiring new customers in the period/ total new customers acquired in the period.
Customer acquisition costs include:
Lead generation costs — the cost of capturing new leads, bringing them to your website, convincing them to join your e-mail marketing list and so on. These will include costs for digital channels, both organic and paid (e.g. SEO, Google Ads, social media ads, Amazon ads) and analogue channels (e.g. industry events, PR).
Lead conversion costs — the cost of nurturing leads so that some of them eventually buy from you. These may include e-mail marketing, phone calls, in-person meetings and so on.
You need to pick a time period over which to measure your cost per lead (e.g. monthly).
Customer lifetime value
Customer lifetime value is the sum of the profits you make from a customer over the whole period in which they keep buying from you.
Here are the key components you need to estimate lifetime customer value:
Assumed length of the customer relationship.
Customer purchasing frequency — how frequently they will buy from you.
Average transaction value — how much they will spend each time they buy.
Assumed profit margin on each sale.
If you’re an established small business you can just gather the data on how your existing customers behave and assume your future customers will follow the same profile. If you’re a young business with little track record you’ll need to make sensible assumptions to plug any gaps.
Putting it all together
The final step in analysing the profitability of your marketing is simple. Just compare your customer acquisition cost with the estimated lifetime value of the new customers you’re winning.
If your estimated lifetime customer value is well above your customer acquisition cost, your strategy should be profitable.
If it’s not, you need to work out how you could bring down your customer acquisition cost (e.g. improve the conversion rate from your website landing page). If you can’t see a way to reduce the customer acquisition cost of your current marketing approach you may need to try a completely different strategy (e.g. a different marketing channel).
Customer profitability analysis is a vital part of designing your overall marketing strategy. If you’d like to investigate this topic in more detail, see our separate article on how to use customer profitability analysis to find your best customers.
Digital marketing performance metrics: how to use them to get better results from your marketing
Do you want to build a better understanding of the metrics that people use to measure the performance of different digital marketing strategies?
Perhaps you’re a solopreneur who does their own marketing? Or maybe you run an established small business and pay an agency to manage your marketing? Whichever is the case you need a sound grasp of the essentials of digital marketing performance measurement.
Here are some of the most important metrics you’ll come across that relate to digital marketing. I’ll explain what each metric means and how to calculate it.
If you’d like a deeper dive into applying these metrics in your business, try our detailed article on using digital marketing performance metrics to get better results.
Paid ads
Impressions: The number of times that the ad platform displays your ad to someone.
Click through rate (CTR): The share of people who click on your ad after seeing it, expressed as a percentage. For example, if Google displays your ad to 1,000 searchers and 150 click on it, the CTR would be 15%.
Landing page conversion rate: The percentage of visitors who take the action you ask them to after they arrive on your website landing page. Your ‘call to action’ might be as simple as making a purchase. Alternatively it could be the first step in building a relationship with the visitor, such as joining an e-mail marketing list or requesting a free information pack.
Cost per click (CPC): The amount you pay, on average, for each visitor that an ad brings to your website. Calculate it like this: CPC = Total spending on paid ads / Total clicks through from ads to your website.
Organic search
Number of ranking keywords in organic search: The number of keywords you’re targeting that appear near the top of the search engine results page (usually taken to mean in the top 10 organic search results excluding paid ads).
Website bounce rate: The percentage of visitors to your website who leave after visiting only one page and without taking any further action (e.g. subscribing to your e-mail list). That’s usually because it turned out your site wasn’t relevant to their search.
Page views: The number of pages a visitor to your site views before leaving. The longer a visitor stays on your site and the more pages they read, the more you can engage them and impress them.
Time on site and time on page: The time that visitors spend on your site in total and on individual pages. By analysing how long visitors spend on individual pages you can work out what type of content they like and then give them more of it.
Social media engagement
Engagement rate: Engagements include comments, likes and shares. Engagement rate is usually expressed as a percentage relative to the size of your audience and calculated like this: 100 x number of engagements / size of audience. Your number of followers is often used as a proxy for your audience. You should measure engagement over a time period (e.g. monthly).
You can calculate an engagement rate for your social media channel in total and for individual posts.
Reach: The number of people who see your content over a chosen period of time (e.g. a month). You can track this in total or for each of piece of content you publish.
Impressions: The number of times your content (a post, a video etc) has been seen. You can measure impressions in total and for each piece of content you publish.
Audience growth rate: The percentage rate at which your number of social media followers is growing over your chosen time period. Here’s the calculation: growth rate = 100 x (followers at end of period / followers at start of period -1).
Social media marketing
Click-through rate (CTR): The rate at which visitors to your social channels click on your posts to complete an additional step (e.g. to visit your website or access a promotional offer). You can measure CTR for your channel overall or for each individual post. Here’s how to calculate your CTR: 100 x number of clicks from a post / number of impressions of a post.
Conversion rate: How frequently the visitors who come to your website via your social media channels carry out the action you want them to (e.g. subscribe to an e-mail list or buy a product). Here’s how to calculate your conversion rate: 100 x number of conversions by website visitors arriving via social media / number of website visitors arriving via social media.
Cost per click (CPC): This metric is calculated in the same way as for non-social paid ads.
E-mail marketing
Delivery rate: The percentage of your e-mails that reach the inbox of the intended recipient. Here’s how to calculate delivery rate: 100 x e-mails delivered/ e-mails sent.
Open rate: The percentage of delivered e-mails that is opened by the recipients. The calculation is: 100 x e-mails opened / e-mails delivered.
Response rate: The percentage of recipients who do what your e-mail asks them to do, such as making a purchase or requesting an information brochure. The formula you use for the calculation is: 100 x e-mail responses / e-mail opens
Sales activity and performance metrics: use them to boost results from your sales team
Do you use a sales team to sell your product or service? If you do you’ll know that salespeople aren’t cheap. So it’s vital to analyse how your team is performing and extract any lessons that can help them improve.
The key to that is to analyse the main metrics that flow from your sales team data.
There are two types of metric you should focus on: activity metrics and performance metrics.
Sales activity metrics
Sales activity metrics measure effort — they are inputs into the sales process. Here are some of the common metrics you should consider tracking:
New sales leads your team identifies and adds to your pipeline.
Outbound calls by your team.
Client meetings your team holds.
Product or service demonstrations your team gives to current or prospective customers.
Sales pitch meetings or calls your team conducts.
Product or job quotes your team sends out to potential customers.
You should measure these metrics for your sales team as a group and for each of your salespeople individually. Record them over a period of time (e.g. monthly) so that you can compare how activity evolves over time and relative to any targets you may have put in place.
You can use activity metrics in two ways:
The metrics record the work your salespeople have already done. With that information you can see who’s been putting in a lot of effort and who hasn’t.
You can use them to create a system of Key Performance Indicators (KPIs) that can form the basis of targets you set for your staff. By setting targets for sales activities (e.g. adding new leads to your pipeline) you guide your staff towards the tasks you want them to prioritise without micromanaging them.
Sales performance metrics
The second type of sales metric you can capture is performance metrics. These measure results — they are the outputs from the sales process, not the inputs. In the long run it’s performance metrics that drive financial results so these are the metrics you should care about most.
Here are some common performance metrics you could consider tracking. They are normally expressed as percentages or ratios rather than absolute numbers. Measure them over a defined period of time, such as monthly:
Lead conversion rate (100 x new customers won / new leads taken on). This measures how good your sales team is at taking on leads, nurturing the relationship and closing a first sale.
Pitch win rate (100 x pitches won / pitches delivered). This measures how successful your sales team is at closing a sale once one of them has won the opportunity to pitch to a potential customer.
Sales cycle length (Total days from first contact with new customers you later onboard / total new clients onboarded). This metric measures how long your sales team takes on average to turn a lead into a customer. You can also use it to measure the time taken to turn a pitch into a product sale.
By analysing both activity and performance metrics you can spot which of your salespeople are the most effective, as opposed to the hardest working. For example, if you compare the number of calls your salespeople make with the number of sales they close you can identify which salespeople get the best results relative to the work they put in.
You can use this information to investigate what your most effective performers are doing well. Then you can spread their best practice techniques around the rest of the team.
To learn more about analysing sales activity and performance data, read our detailed article on using sales metrics to improve the performance of your sales team.
Operational efficiency: turning customer value into profits
You might have a great product or service and your customers may love you for it. But unless you run your business efficiently you won’t earn the financial rewards you deserve. Capturing your operational data and using them to create and analyse key ratios and metrics is one of the pillars of effective operational management.
The metrics you can analyse will depend on what type of business you run. Product and service businesses won’t share all the same metrics for example. But here are some of the key metrics you could analyse.
Development lead time
How long does it take you to develop and launch a new product or service, from the initial idea to the commercial launch? Try to minimise this. Being faster will keep you ahead of your competitors and will usually keep your development costs down.
Product defect rate
If you’re a manufacturing business, what % of your products turn out to have a defect when they come off your production line? Measuring this is crucial — defects cost you money in re-work or scrapped product.
A spike in the defect rate might indicate that you’ve received a faulty batch of components, that a new employee has misunderstood a key manufacturing step or that one of your production systems has developed a fault. Whatever the reason, spotting the problem immediately will give you the best chance of identifying the underlying cause and minimising lost profits.
Process or systems downtime
If you’re a manufacturing business, your systems undergo regular downtime for maintenance. They may also go wrong from time to time and need unscheduled downtime for repairs. Monitoring these values over time should alert you to any inefficiencies that you could solve.
For example, a rise in unscheduled downtime might indicate that it’s time to replace an old piece of equipment. A rise in scheduled downtime could cause you to question the service you’re receiving from your service partner.
Equipment downtime isn’t just important for production systems. It’s equally critical for your IT infrastructure, which can bring your entire company to a halt.
Capacity utilisation
This metric is usually associated with manufacturing businesses, where it relates to how much of their theoretical production capacity is being used to manufacture customer orders and how much is being lost in idle time. You should have a target for your ideal maximum utilisation rate and monitor how close you manage to keep to that level.
This isn’t a simple process and your target won’t be 100%. You need to allow for planned maintenance downtime. You might want to preserve some capacity to accept rush orders, which generate high prices and margins. Fewer, larger orders might give you a higher uptime % because you reduce time lost to changeovers but you might be able to charge a lot more for smaller orders.
Remember that capacity utilisation applies equally to a lot of service businesses. If you run a marketing agency or an accountancy firm or if you’re an electrician or a roofer you need to consider many of these same issues when working out how to maximise your profits.
Order fulfilment time
This is the length of time it takes you to deliver a finished product or service from the time at which you accept the customer order. You might operate a manufacturing business but you might equally operate a car servicing centre. Either way there is a lead time before you deliver to the customer what they need.
You should have in mind an optimum lead time and it won’t necessarily be very short. Having a moderate lead time enables you to attract customer business while keeping a buffer of orders in your pipeline. If the lead time is too long you’ll risk losing business. If it’s too short you could find yourself with no jobs on hand and idle staff.
So monitor your lead time and be alert to changes in trends. Have a list on hand of potential actions you can take if your lead time moves away from your sweet spot in one direction or the other, such as taking on temporary staff or boosting your marketing spending.
Delivery on time in full
Once you make a commitment to a customer that you’ll deliver a product or service by a given date, that’s a promise you should always meet. Missing that type of deadline may attract a financial penalty. Worse than that, if your late delivery damages a relationship your customer has with one of their own customers, you might lose any future business.
So track any instances of failure to deliver on time and in full. If you see a rising trend, move quickly to investigate. It could be that your internal communications between departments allow for misunderstandings to occur. Maybe you need to upgrade your workflow planning software. In any case it’s essential to diagnose the underlying cause so you can take the right corrective steps.
Stock availability
When you run out of items that you sell from stock, this is called a stock out. If it happens and a customer tries to order the item, you’ll have an unhappy customer (who may not return again) and you’ll lose revenues and profits you would otherwise make.
Set yourself a % target for stock availability and monitor your level. Your target might be 100% but that won’t always be the case. You need to balance the risk of running out of stock (e.g. if a customer makes a particularly big purchase) against the costs of holding lots of stock.
Companies with complex inventory can acquire inventory planning software that uses algorithms to tell them when the optimum time is to replenish their stock.
Key financial ratios: top metrics non-financial entrepreneurs should know
There are plenty of definitions of success in business. But for many entrepreneurs, success is mainly about the bottom line — it’s financial. How much profit does your company make? How valuable is it? If you sold the business, would the proceeds make you wealthy?
To make your small business financially successful it’s vital to make good use of key financial ratios and metrics. These can help you to:
Spot emerging problems or weaknesses.
Identify opportunities for improvement.
Gain better control of your business.
Key financial ratios is a big topic in its own right. In this article I cover some of the most important financial ratios and metrics. I explain what each one tells you and how to calculate it. But there are too many to address here.
If you’d like to dig deeper into the subject after reading what follows, try our detailed article on key financial ratios non-financial entrepreneurs should know. It includes suggestions for how to use each metric to generate performance improvements in your business.
Sales growth
Sales growth is a vital metric for almost any business. Here’s how to calculate it:
100 x (sales in the current period/ sales in the comparison period -1).
You can analyse sales growth year over year or sequentially (i.e. against the immediately preceding period). You can calculate it using a base period of a year, a quarter, a month or any other period you like.
When you’re analysing sales growth, be mindful of the following:
Use your analysis to capture both long-term and short-term trends.
Find ways to smooth out seasonality or lumpiness so that your analysis doesn’t confuse real trends with short-term ‘noise’.
Operating profit margin
Your operating profit margin measures your profit after deducting all your operating expenses but before deducting interest and tax.
Here’s how to calculate it: 100 x (sales – total operating costs) / sales
Operating profit margin is a very common measure of profitability. You can measure other profit margins too, such as gross profit margin or net profit margin.
Contribution margin
Your contribution margin is the profit margin you make on each incremental unit of revenues. It’s the profit you make when your sales increase but your fixed costs stay the same.
Here’s how to calculate it: 100 x (sales – variable costs) / sales
Contribution margin is very useful for scenario analysis and business planning.
Return on equity
Return on equity (RoE) measures the amount of profit a company makes compared with the amount of money its shareholders have tied up in the business. That money is called equity shareholders’ funds, or equity for short.
Here’s how to calculate RoE: Return on equity = net profit / equity
RoE is a very important metric. The higher your company’s RoE, the more efficient it is at using the money you’ve got invested in it. And the more efficiently your business uses your money, the wealthier it’s likely to make you.
You can also calculate return on assets — the amount of profit a company makes compared with the total assets the company has on its balance sheet.
Working capital ratios
Here are some of the most common working capital ratios:
Days of receivables (DoR) measures how quickly you collect the money owed to you by your customers. Here’s how to calculate it: 365 x trade receivables / sales.
Days of inventory (DoI) measures how much inventory you have on hand. Here’s how to calculate it: 365 x inventory / cost of materials in your profit and loss account.
Days of payables (DoP) measures how much time you take to pay your suppliers.
Here’s how to calculate it: 365 x trade payables / costs of goods and services bought from trade suppliers in your profit and loss account.
You want to hold as little net working capital as possible while avoiding business interruptions (e.g. running out of stock). That’s because working capital has a cost. It’s either the opportunity cost of what you could earn on your money if it weren’t tied up in your business or it’s the interest your company pays on the borrowings it uses to finance its working capital.
You can combine the above measures to calculate your cash conversion cycle. This measures the length of time your cash is tied up in working capital before it converts back into cash.
Here’s how to calculate it: Cash conversion cycle = inventory days + trade receivables days – trade payables days
Liquidity ratios
The current ratio is a measure of the likely ability of a business to meet its short-term liabilities (i.e. those with a due date within the next 12 months) as they fall due.
Your current ratio is calculated like this: current assets / current liabilities.
Current assets comprise inventory, trade receivables, prepaid expenses and cash while current liabilities comprise trade payables, accrued expenses and short-term debt.
The higher the ratio, the more comfortable this suggests your liquidity position is. A current ratio of less than 1.0 could be a cause for concern.
The quick ratio is more conservative because it excludes inventory from the calculation. That’s because inventory is usually some distance from converting into cash and further away from cash than receivables.
Your quick ratio is calculated like this: (trade receivables + prepaid expenses + cash) / (trade payables + accrued expenses + short-term debt).
Again, a ratio of less than 1.0 could be a cause for concern.
Financial and operating leverage
Interest cover measures how comfortably a company can cover the interest expenses on any loans it’s taken out.
Here’s how you calculate the ratio: Interest cover = operating profit / interest expense
As a rule of thumb a ratio below 3x is often seen as being stretched. A ratio below 1x indicates that a company’s current profit stream isn’t enough to cover its current interest costs.
It also pays to monitor your debt to equity ratio. This measures how dependent your company is on debt financing and therefore how exposed your bottom line profits are to any negative shocks such as rises in interest rates.
Here’s how to calculate the ratio: 100 x debt/ equity
Staff satisfaction and wellness
In today’s modern economy, business success is increasingly driven by a company’s ability to harness the skills and knowledge of its employees. Staff are more than just a cog in a wheel — they are the public face of a company and its interface with its customers.
With that in mind, it makes a lot of sense for managers to track metrics that can provide them with information about the health of their workforce and the state of their company’s relationship with its staff.
Proper analysis of your workforce data can bring you major benefits. Here are a few examples:
Productivity. A happy, healthy, engaged workforce is more likely to be productive than one which isn’t. Your staff will make you more money if they feel purposeful and fulfilled at work.
Hiring. Word gets around. Your staff post on employee networking sites and chatrooms that contain staff reviews of their own company. If your workplace isn’t a happy one you may find it harder to recruit new staff.
Reputation. If your staff are your first line of contact with your customers, wouldn’t you prefer them to present a dynamic, enthusiastic outward image?
Risk. If you allow your staff’s health to suffer or their professional development to be impaired for reasons that you could or should have been able to pick up and remedy, this could leave you open to a range of risks. These start with the loss of valued employees through resignation and escalate from there.
Here are some common metrics you can gather and monitor so you can maintain a healthy workforce and spot problems before they become critical:
Sick days
We all suffer illness from time to time. But repeated absence from the office due to illness without a convincing reason can be a warning sign of several things.
It could mean someone is more seriously unwell than you realise. It may mean they are demotivated by their work (perhaps they are not being challenged and would like some tougher assignments). It might mean they are suffering bullying or discriminatory behaviour by their manager or colleagues.
You need to track sick days, treat anomalies as potential warning flags and investigate promptly but sensitively.
Employee turnover
Typical rates of staff turnover vary from industry to industry. You should have a reasonable idea of what should be normal for your company. It’s vital to track your rate of staff turnover and investigate if it’s unusually high or rising.
Perhaps you’ve just been unlucky. But again, if turnover is being caused by poor management or even bullying, that’s something you must pick up early and act on.
Disciplinary issues
In an ideal world you won’t ever have to initiate a disciplinary investigation into any of your staff. But if one of your staff does step over a red line it’s vital to have a proper procedure in place to deal with the issue and follow through on it.
You should keep track of any data related to disciplinary issues and be alert to any patterns that develop. For example, if a particular person seems to attract complaints but nothing is ever proven, it’s not enough to just shrug and move on. You can’t create evidence out of thin air you but can take steps to reduce the opportunities available for similar complaints to arise in future.
Staff satisfaction scores
A good way of gathering data on staff morale and motivation is to gather feedback from them directly. Try using a staff satisfaction survey to learn about their sense of engagement, their satisfaction with their career development, their desire for more learning and skills development and so on.
You can do this yourself or, if you think it would inspire greater participation and more open feedback, you can hire an external agency to do it for you.
360° feedback
Another common approach is to gather so-called 360° feedback. In this case, staff are asked to provide ratings and feedback on their manager, in confidence. Once again, be alert for any patterns that may develop over time. Does a particular manager seem to attract a lot of criticism? This can be a good tool for picking up potential problems early on.
Be sensitive to the fact that many managers used to be front line staff and were promoted into their role without any formal training on how to manage people. Sometimes some simple coaching and instruction is all they need to become more effective at leading and developing their team. But you won’t find out they need help unless you look in the right places and ask the right questions.
Days of training
Hopefully all of your staff have an individual training plan to develop their technical and soft skills. Be sure to record how many days of training each of them has per year and what they studied. You should have a target for the number of days per year that staff at each level of your business spend on training, linked to the skills you think your business will need in the future.
Workforce diversity
Workforce diversity has become a big topic for business over recent years. Some people may see workforce diversity as a political fad that may disappear just as quickly as it appeared. Yet that is to see diversity in a one-dimensional way.
There are two different issues at play here that demand the attention of business managers. The first is diversity of background, experience and perspective.
When a business owner or manager takes important decisions, they will tend to reach better conclusions if they have examined the issues from all relevant angles. If they and their management team share very similar backgrounds and thought patterns, they may only see the issues they need to decide on from a single perspective.
By contrast, if there are people in the room who are equally qualified from the perspective of technical and professional expertise but who have different life experiences (education, social group, gender, ethnicity and so on), this may increase the chances of the group taking good decisions.
The second issue relates to the ability of a business to win and retain customers.
An increasing number of customers want their suppliers to pursue policies that foster an appropriately diverse and inclusive workforce. This is particularly the case when it comes to public sector customers.
To avoid losing out on business opportunities with such customers you would do well to start recording diversity statistics for your workforce. If you find your workforce is stereotypically white and male, think carefully about your approach to recruitment and promotion. Be aware that people have a tendency to hire and promote people who look like them.
Be careful to examine the potential of candidates who don’t match the current profile of your workforce. Is there a risk you’re overlooking their talent and potential because they look like they don’t fit? What extra dimension would they bring to your organisation beyond the technical skills and experience that you require all your candidates to possess?
Environment, energy and waste
Small businesses will be well-advised to develop plans for gathering and analysing their environment-related data. That’s the case regardless of whether the business owner feels any moral obligation to do so.
Here’s why:
Many large businesses are setting themselves decarbonisation targets that include their supply chains. Targets for supplier emissions — known as scope 3 emissions — are forcing many small businesses to measure their carbon footprint and develop plans for reducing it (whether they like it or not). They may otherwise lose business from key customers.
Reducing your carbon emissions can save you money. That’s because the first step in reducing emissions is to eliminate waste. Managers often surprise themselves by the amount of needless cost they can take out of their business by investing in modern, energy efficient systems (equipment, lighting, HVAC, battery electric vans etc).
On top of measuring their energy data and calculating their carbon emissions, here are some other metrics that small businesses can track in order to reduce costs and protect the environment:
Water consumption.
Waste production and waste recycling rate.
Don’t forget that these measures won’t only help you win customers and reduce costs. They may also help your recruitment. Many potential employees want to work for a business that plays an active role in protecting the environment and reducing the risk of catastrophic climate change.