I’ve visited with a lot of CEO’s who were interested in knowing what to have on their radar screens at all times.
I call these critical issues that are the drivers in any business – Key Performance Indicators (KPI’s). Frequently, all I see CEO’s looking at are the typical financial results at the end of the month, quarter or year.
Granted these are the common measuring sticks of the results of managing your business, but they are historical facts not indicators of the underlying dynamics driving the company into a more profitable future.
Successful firms concentrate more on the market dynamics associated with achieving their long term strategic goals than the current short term historic financial results. These CEO’s realize that if they are successful in growing the value of a customer, good financial results will just be a natural byproduct of this strategic customer focus.
What should you be watching? If you think about any business – what is your purpose in being? To deliver good value to your customers in a way in which they will have a pleasing and memorable experience. As a result, they will return time-and-time again. Much like what’s happened at Amazon where there customer loyalty ratio and value is at an all time high.
This should be the basic premise of any business. That means that your customers have great value to you, and in reality that’s all that’s going on. Isn’t it?
With that in mind I always recommend that any CEO should be watching the average value of a customer as the most important key performance indicator. If the goal is to continue to grow the average value of a customer then that better be the most important KPI you have. You need to watch it every day because if it starts to flatten or decrease you need to find out why – right away.
Starbucks was tracking the average value of their best customers for quite awhile and knew how much their best customers were spending every day, week and month, and even their average customers. Then apparently they stopped and assumed it would continue to grow. It didn’t! Why? Their value proposition became “fuzzy” and some of their best customers came less often and bought less, or went elsewhere. Apparently, to McDonald’s and Dunkin Donuts, or a local coffee merchant with a better value proposition.
If the average value of a customer goes flat or declines only a few things can be happening even in a down economy. Like at Starbuck’s either existing customers are buying less, you are adding customers who are buying less on average than your existing best customers, or customers are going elsewhere.
Any one, or all of these customer related events may not show up immediately in your financial results, and by the time they do it may be too late to do anything about it as a dangerous trend has already developed that probably will have long term financial implications, like happened at Starbuck’s.
With all of the advances in IT these days collecting information on customers and tracking their activity should be part of your management information system and automatically displayed as part of your KPI’s, or scorecard. All of the most important indicators that you should be watching should be available at the touch of a key, or appear on your monitor periodically throughout the day. Likewise, when you cross over the break-even point for each month that information should appear, as well.
If they are not don’t be surprised if you are surprised like Starbuck’s was. Minute-by-minute tracking of key performance indicators is part of our lives these days whether it is a global statistic like on the NYSE, at Walmart or Amazon.
I guess the question you need to ask yourself is what am I watching? And, is it what I should be watching? Most importantly – is it current?If you are wondering what to watch or how to get information on the value of your customers let’s start a dialogue. E me at: firstname.lastname@example.org
An entrepreneur himself, Bob has spent most of his career involved with starting, growing and selling businesses. Having held managerial positions with IBM, Pfizer and Exxon, he draws upon extensive organizational experience with large and small companies in advising CEOs of growing firms. He is available online to answer questions from Chief Executive readers, as well as offer workshops, tips, books to read and a monthly online column about common issues facing CEOs of growing firms. Bob has been featured in USA TODAY for his work with Inc 500 firms and is associated with NYU’s Stern Graduate School of business in their Center for Entrepreneurial Studies where he is a Venture Mentor, Marketing Strategist and Business Plan Reviewer.
He is the author of GUIDEBOOK TO PLANNING – A Common Sense Approach to Building Business Plans for Growing Firms, which has recently been reprinted. He is a past contributor to Chief Executive and one of his articles was featured in The Best of Chief Executive. Email Bob at: email@example.com