WHAT IS THE CRITICAL NUMBER DRIVING YOUR BUSINESS?
In business, the most successful leaders plan ahead. No matter what your industry or company size; as a business owner it’s important to set small and large-scale goals and align these with what’s known as ‘The Critical Number’.
Whether you’ve only recently discovered the term or you’re currently in the process of re-evaluating your critical number; identifying these numbers is critical for any type of business to thrive. Ultimately, your critical number is a key component of your decision-making dashboard. This dashboard predicts what direction your company will take 6 months to a year down the line.
Putting The Critical Number into Practice
Each business quarter should focus on 1-2 critical numbers. Whether it’s a sales percentage or a performance measure, analyse then choose accurate figures that will:
1. Encourage each department to work together towards one common goal.
2. Benefit the health of your entire organisation as a result.
Although most SMEs do have a critical number, typically it’s the sales pipeline that takes precedence. And while a solid sales strategy is fundamental to your business, you must be able to identify where this leaves the rest of your employees. Operations, logistics, customer service… each department plays an active part when it comes to defining the critical number.
Trust the Right Execution and Improve Your Sales
It might be that you’ve recruited the best sales team to make sure your daily targets are met. But here’s the dilemma: these sales are not being manifested as actual profit. That’s why the execution of sales is equally (if not more) crucial to get right. Once you perfect the execution, your business will start to see an increase in physical pounds.
A great example of this was with one of my clients. They have an engineering based company and approximately 40 mobile engineers. The sales team kept winning work but the sales were not going up in proportion to the amount of work done. Now the natural instinct would be well get more sales in but that was not the issue. 30% of these site visits were aborted, impacting the sales figures at the end of the quarter – and subsequent quarters.
Had we kept chasing sales we would have had to hire more engineers. Granted sales would have risen but still 30% of visits would have been aborted so we would have turning over more whilst injuring higher costs. So in this case, the critical number we addressed was the 30% in aborted visits. We had the aborted visits as a critical number for 3 quarters and took active steps to reduce this percentage over time.
In the end we got this down to below 4% which basically allowed us to increase sales by over 25% as well as profitability. All departments had a role to play as we had bottlenecks across the entire organisation and this whole process brought the team closer together.
How to Fix Your Critical Number
Before you can implement a critical number, it helps to figure out which areas your company has the biggest bottleneck or constraint . Team meetings work well for brainstorming. You can then communicate a common goal with each separate department. If it’s your sales team, perhaps focus on suggestions for how to improve sales bookings. Or if it’s your warehouse team, make sure all the necessary tools and parts are on-site ready to use for the next client visit. By adopting a highly organised approach, this will ensure your employees act more efficiently when completing each allocated task.
Whether you prefer to focus on one or more critical numbers before moving onto the next, once you highlight a solid goal your entire workforce can identify, your business will pose a much higher success rate.
Connect with Peter Boolkah – The Transition Guy
If you need some personalised coaching on how to identify and implement your critical number; and most important of all, how to bring this to life within your organisation, get in touch.
…and remember, failing to learn is learning to fail.