Ignorance is not bliss

DO YOU know the key performance drivers of your business? Because looking at last year, adding a bit and then hoping it’s about right, probably won’t cut it over the long term.

I note retail sales figures over the 2018 December Christmas period were 2.7 per cent down on last year, and 7.4 per cent down on budgets. Most retailers had expected growth, yet it did not arrive.

There are many factors behind this downturn, and this is why industries and markets must shift as people find new ways to do business and customers seek new ways to engage with brands.

Business budgeting must have a view to external factors as well as understanding the internal business operations and aspirations. And budgets must be set differently depending on what you are trying to achieve - be it increasing shareholder return on capital, or investing in infrastructure for future growth.

It’s imperative to know the internal drivers of your business, and each business is different. Let me use one of the Big Red Group (BRG) businesses as an example of what drivers we look at when determining our financial targets.

I think of Redii.com, our ‘software as a service’ (SAAS) business. It has some key drivers for success:

■ The number of ‘users’ who come to the website; the number of people who engaged in the downloadable content; the number of people who attend webinars. These drivers determine our volume of Marketing Qualified Leads (MQLs).

■ Of those MQLs, those who take up the opportunity of a sales presentation, a demonstration and then a proposal give us the metric for Sales Qualified Leads (SQLs).

■ Then there is a ‘close’ rate for trial programs and customers.

■ Post sales there is a further metric which is called the ‘churn’ rate - how many cus- tomers do not stay beyond the trail, or those who do not renew their subscription.

This is the pipeline flow from being a ‘user’ on the website to becoming a long-term customer of the business. And at every stage of the pipeline there are conversion rates and industry benchmarks to determine whether we are doing a good job or not.

It is also a really clear process for determining where the true costs of acquiring a customer lies. Allocating budget to each stage of the pipeline, and then reviewing budget performance and outcomes, will strengthen the business and focus our people on what is delivering results.

Having a real-time reporting system on these key metrics also helps. I don’t want to wait until I get the financial reports against budget to determine how I performed for the month. At the BRG we are able to generate reports in real time, but each day I also receive a flash report on our key performance drivers. This means I can see if something is not quite right and action it in the moment.

Knowledge is power, and in business ignorance is certainly not bliss. Business is getting faster and faster and your cycle of reviewing to plan needs to operate at the same rate. If you know your drivers, and what customer behaviours sit behind them, you will know which levers to pull to keep your business on the path to growth. Naomi Simson is the founder of RedBalloon, and the cofounder of The Big Red Group, the third largest experience marketplace in the world. She is the author of two best sellers, Live What You Love and Ready To Soar, and appeared on Shark Tank for four seasons. In this series we present some of her key learnings on how she grew her businesses.