Turn your company’s metrics into powerful business drivers by understanding the difference in key metrics types.
Determining when and how to use metrics to improve your business can be overwhelming. And, if you’re like many business owners, you’ll default to looking at your financial statements as your only source of metric. Business owners want to grow their bottom line but they’re often so focused on the day-to-day operations that taking the time to research and decide which metric to use seems daunting.
We work with business owners and executives often on their business goals since we align their commercial real estate needs with their overall business strategy. Through that experience, we’ve found that not all businesses understand the difference in key metrics or when and how to use the correct metric. Using metrics in the right way will improve decision making and increase profitability and growth.
Effective metrics will drive business strategy and direction, help you make better decisions, improve business performance, and allow you to stay current with changing external environments. Understanding the differences in key metric types will improve your business strategy and performance and help you reach your goals and objectives faster.
Metrics and measurements are often seen as the same thing and often used interchangeably by many business analysts. But there is a difference between the two. A measurement is an actual figure or dollar amount that can be summarized, like sales averages; whereas, a metric is one or more measures used to understand and track a particular process. Basically, without a measure, you can’t have a metric.
Metrics and measurements help you understand your business better by demonstrating how certain factors are affecting your business. Tracking, monitoring, and assessing the good and the bad of your business will give you more control over the outcome and its success.
Metrics drive improvements and helps businesses focus on increasing efficiency, profits, cost savings, and client satisfaction. They allow you to quickly identify business deficiencies that can hurt you in the end or uncover areas of strength you can leverage. Understanding which metric to use and when will give you the information needed to evaluate your performance.
There are common metrics most business owners and executives track such as financial, operations, sales, and marketing. In addition, to these common metrics there are specific metrics that only relate to certain business fields. However, understanding there is a difference between metrics and indicators and when to use them is an important aspect.
Every business owner or executive wants to track and monitor business marketing, sales, and financial performances, along other metrics specific to their market. A sales metric may monitor sales growth in order track the sales process or financial metrics are used to track the fiscal health of your business. Regardless on which metrics you use, the key is to identify indicators to ensure you are achieving goals and objectives.
Unlike a metric where you are tracking a process, a key performance indicator (KPI) will actually tell you whether you are hitting your business targets and objectives. Two common KPIs business owners evaluate are leading and lagging indicators. Leading indicators are normally a change in market or a prediction of what could happen and the lagging indicators tell us the results. Lagging indicators show where you’ve been, while leading indicators show where you’re going. The two work together to track your progress and improve the process. Leading indicators could include client satisfaction and volume growth while lagging indicators are revenue growth and profit and loss. Basically, if you don’t use KPIs to measure how you’re doing, you can’t improve the process.
So, now you know that KPIs are an important way to ensure you are hitting your objectives. But what is the actual definition of an objective? It’s a term that is often used in a vague way. When you set a goal for your business (for example, to grow revenue), objectives are actions that you need to take in order to accomplish that goal within a specific time frame.
But how does it all fit together? KPIs tell you whether you’re hitting your overall business goals and objectives, while metrics support KPIs. Simple, right?
The most effective metrics largely depend on the type of business you have and what’s important to your business. For example, an IT / technology business might want to look at project delivery and project cost metrics, while a retail business owner may want to look at inventory and footfalls metrics. Also, knowing when to look at a metric verses a KPI is important too. A metric will help you figure out what went wrong if the KPI identifies a problem.
Additionally, business owners should look at their lease or purchase of real estate for metrics too. Incorporating key metric real estate factors will afford business owners greater flexibility and affordability that align with overall goals. For example, determining the current staff and future hire rate will affect your space needs and future growth.
Using the right metrics in the right way is key to managing performance and achieving goals. Metrics and KPIs can help you learn from mistakes and expose successes so you are better equipped to make better decisions that are more aligned with your business goals and strategies. Essentially, metrics help you understand where the business is going, determine if something is wrong or if something is great, and whether you have reached your targeted goals and objectives.
Still unsure about which metrics to use? Or don’t have key metrics around your commercial real estate. You’re not alone. We find 90% of our clientele struggles with real estate metrics and we’re happy to guide you.
What are your real estate metrics? Contact one of Verity Commercial’s real estate advisors today to find out.