What is it about performance that makes people change their actions, thoughts, and beliefs? Is it merely a lifelong effect of peer pressure and family “training”? In small business performance traditionally translates directly into revenue because of inherent pressure to balance cash flow in the daily operation. The mind set of linking business performance to such a narrow set of variables will end up costing far more in the long run.
Performance as a system
Converting measurement of performance to a system approach is the ideal method because results can cover output from a larger pool of indicators than those that focus on revenue. Human capital, vendor management, supply chain, finance, and operations all have very important roles in determining performance values. Basically, a holistic method rather than a reflexive one.
Reflexive Action
Reflexive action is a direct response to a particular stimulus or a set of stimuli without thinking. For example, sales revenue can be construed as a direct response to marketing effort and measured only as return on investment (ROI). A no-brainer, right? Wrong! What about other influences like market conditions, employee effort, operational change, residual advertising, and risk? In actuality, sales is a byproduct of a system working towards effectiveness and not a true measure of efficiency. Measuring the wrong system output leads to artificial or unrealistic performance.
Let’s see this in action. A print shop creates a flyer at a cost of $1,000 evangelizing the features and functions of their new printing service and sends it to 5,000 e-mail addresses on Monday. Tuesday, one of their top sales people closes three accounts leading to $10,000 in new billed revenue on the service. Wednesday, the head of operations decreases the cost of production by 10% by finding a cheaper source for paper and toner. Finally, Friday rolls in and an existing client buys the service from their account rep. How much of this week’s revenue can be attributed to the flyer? Based on measurement of new services acquired, the flyer is a huge success. Actually it is not. All the revenue produced comes from outbound efforts, optimization, or existing relationships; not the marketing campaign.
Holistic measurement
To correct this issue, a paradigm shift to a holistic approach is necessary. The flyer should be part of a system approach or plan to push printing services. All aspects of the business contribute to the program and should be measured. Looking at the whole company’s influence rather than just the flyer ROI will create better measurement. Knowing this, how can the flyer be adjusted for success? The best way to measure a marketing tactic like the flyer would be to include a QR code, measureable call to action, coupon, or contact method. Measuring performance would come from direct results of the campaign in the form of click through, inbound calls, redemption of coupons etc.
But ROI is the best measurement
At face value, Return on investment(ROI) is an easy method to use because it can be applied to just about any system. Simply dividing results by associated costs yields a percentage. The key is defining all the working components that go into the equation. In the case of the flyer, if you use sales produced during a specific time period and don’t account for other efforts the percentage will be artificially high. In essence, what goes in affects what comes out. The best practice would include detailing all components, creating measureable indicators, and defining realistic goals creating a process approach rather than just a tactic.
About the Author: Kristian Hohenbrink
Kristian Hohenbrink is the president of KandH Consulting, a regional small business consultancy stimulating controlled growth and enhanced value in small businesses, start-ups and reorganizations. He has over 30 years experience in creating and managing successful businesses and is an avid writer, presenter, sales trainer, and business mentor.
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