Recently, I had the pleasure of kicking off the new year as a guest on Act Local Marketing for Small Business with host Kalynn Amadio. Each week, Kalynn shares information and actionable tips to help inspire and motivate small and medium businesses (SMBs) reach their business goals. On this episode, Kalynn and I discussed SMB Group’s 2015 Top Technology Trends for SMBs and what they mean to the marketing and running of your business. The fourth of a five-part series, this post summarizes our discussion of “KPIs trump ROI and TCO as the new “show me” metric.”
Kalynn: Now there’s a very interesting trend that I want you to talk about and that has to do with key performance indicator (KPIs), that versus return on investment, ROI, because in digital marketing the thing that small business has been saying all along about social media is, “but what’s the return on my investment? If I pay a company to do this how soon am I going to be on the front page of Google? Or how often is my phone going to ring?” Those are very hard things to determine and they’re very hard things to track quite often because a lot of what goes on in digital is similar to networking. What’s the ROI of networking? I don’t know. So talk to me about these key performance indicators versus return on investment.
Laurie: I think historically, the vendors anyway, in white papers and other kinds of educational collateral, have tended to focus on proving that their solutions can return value via these return on investment type of models and analysis, which honestly are kind of complex and very big picture. You have to factor in everything to an ROI. Likewise there’s another thing called a total cost of ownership calculation where you have to figure out all the money you invested for a solution and how much that solution is going to cost you over let’s say a five-year period. The assessments and metrics, while they can be a bit beneficial, they’re usually kind of vague and they’re very dependent on nuance measurements.Honestly, I’ve yet to run into very many small and medium businesses that every do any kind of ROI or TCO calculation at this big picture level because they’re very complicated to do, and time-consuming.
So what we’ve been seeing is there’s something that most companies have been measuring for years, whether or not they call it KPI, but key performance indicators. These are more discrete metrics. Some of them are general, for instance, what’s the time it takes to close your financial books, right? Probably most companies have that function because hopefully they’re making some money and they have to close the books. Are you doing that with a shoebox full of stuff or are you doing that with Excel, or are you doing that with QuickBooks, how are you doing that, what’s your process, and how much time it’s taking you is a key performance metric.
Then there are also metrics that are also very industry specific. For e-commerce we might want to measure things like conversion rates, what is our rate of visitors to the website that actually convert into paying customers? A nonprofit might want to measure the number and increase in donors and the average contribution per donor. There are a lot of different KPIs, the nice thing about KPIs is that they give small and medium businesses more specific very actionable insights on business performance so they can see where they’re doing well and kind of measure and monitor where they need improvement. What we’re seeing is a lot of vendors starting to kind of cater to this more specific measurement requirement and giving small and medium businesses more information about the kind of metrics and benefits that existing customers are getting for their key workflows and business processes.
I think if you’re contemplating any kind of new business solution it really makes sense to seek these out to really understand okay, what were the specific areas of the business solution impacted, and how, and by how much, how much time did it reduce? If it was a revenue metric how did it affect revenues? If it was a conversion rate what was the number or the percentage of new customers that are converting? How did that change that? Repeat customer sales, whatever it is, but I think this more discreet metric is a good way to go for small business because I think it will give you a lot more actionable information and the solution is going to give you the kind of results that you’re going to need.
Kalynn: They seem much more concrete for small businesses. If it’s the kind of thing that you can put on an Excel spreadsheet every month and track and see a trend line that’s either going up or going down then you feel that you have some sort of control over it. Was it Peter Drucker? Who said that if you’re not measuring it then you can’t do anything about it? One of those business gurus, right?
Laurie: Yeah. I remember that quote.
Kalynn: It was something like if you’re not measuring something then how do you ever expect to be able to change it because you don’t really know what’s happening, anecdotal stuff is not going to help you.
Laurie: As a matter of fact a lot of the vendors we’ve been talking about are using analytics to build in these reporting capabilities to help you see those metrics in your own business, more easily. They are kind of taking that oh I’ve got to be a data scientist out of the equation so the rest of us can understand what’s going on in our business. For instance, Intuit is providing a service where you can benchmark yourself against other companies in your industry on some of these KPIs. For instance if you’re a salon and spa owner in the northeast you can say this is kind of what my customer retention rate looks like, repeat business or up selling, selling product with the service, whatever you want to measure. Then you can also opt in to get aggregate information from people with similar businesses. So you can see am I ahead? Am I behind? Then focus on the areas that you need to improve.
You can listen to the complete podcast discussion here.