How to measure business performance — use numbers and not your gut!

Numbers give me a headache. I don’t want to stare at spreadsheets all day — I get a good enough “gut” feel just from running my business. Why should I care about the “numbers”?

Most business owners have a strong “gut feeling” or intuition about their business. It makes sense. They spend all day, every day, immersed in their business. They may not be staring at a spreadsheet, but, in many ways, they gather the “numbers” just the same. They walk through the office and can feel how busy people are. They get the mail out of the mailbox and they see the checks (and bills) that are coming in. They listen to their clients and prospects and experience their reactions to the prices they charge. There’s actually a ton of data that they are absorbing all the time that keeps them informed about the health of their business. Business owners are rarely out of touch with their businesses.

how to measure business performance

Even though you do have that strong connection with your business, there are still good reasons to look at the numbers regularly. Our gut is solid directionally, but it’s not very precise. Our gut can also be fooled; it wants to confirm our biases. We need more than just our gut to run our business.

Don’t believe me? This isn’t only true with businesses. There are other places where we may have a strong gut feeling, but we still rely on numbers. So when it comes to knowing how to measure business performance — here’s a few questions and items you need to think about.

1. If you know how your body feels, why do you get on the scale?

One of the places that many people rely on numbers instead of their intuition is with health and weight loss. There is no place we have more intuitive data on than our health. We know how much we’ve eaten, and how much we are moving during the day; yet more and more of us have found value in looking at the absolute numbers. Why do people wear Fuel bands, or Fitbits — when all that data is available to them intuitively?

Despite the fact that all our health data is experienced by us daily, it can be helpful to stand back and look at the data over a broader range of time. We can sometimes “fool” ourselves into thinking that we are getting more exercise, or eating better than we think — but the numbers don’t lie! When we get on that scale, we are faced with the uncomfortable truth: too many cupcakes!

Where are you fooling yourself in your business? What uncomfortable truths that you are avoiding? How could looking at the numbers help keep you more honest?

2. If you can stand outside, why do you need a weather forecast?

How many weather apps do you have on your phone? (I admit it, I have at least three!) If you live somewhere where the weather changes frequently, you will find that folks are obsessed with checking the forecast.
But the weather is easily observable — just go outside, right?

In this case, looking at the numbers tells us not just what the weather is now, but what it might be like in the future. Knowing what the weather is going to be like helps us to prepare, to plan for it.

Similarly, looking at your company’s numbers on a regular basis helps you to plan, to forecast, and to make different choices based on what you see coming. This is something your gut is particularly bad at. The gut makes good decisions when the future is like the past, but when you hit a discontinuity, or when you want to get different results, you need to dig deep into the numbers. You need to forecast the future and then see if the actions you took created the results you forecast. If they didn’t, why not? If they did, congrats! Now do it again…

3. Am I reaching my goals?

Do you have big goals? Goals that you aren’t going to reach in a month, or a quarter, or maybe even this year? How do you measure progress toward those goals? How do you know if you are doing enough to make it?

reaching your goals

If you have big goals, it’s crucial to look at your numbers. It’s too easy to get discouraged along the way when things are still hard and it doesn’t feel like you are making progress. The numbers can show your progress (or lack thereof) and give you the feedback you need to course correct, so you can stay on track to reaching your goals.

4. Breaking it down

Some of you are avoiding your numbers because they are overwhelming. When you look at a whole page filled with columns and rows of numbers it’s too much — what do you look at?

Your Income Statement and Balance Sheet are traditional tools that have proven helpful in evaluating business performance. You should understand them and look at them once a month. Once you get used to them, you realize that you don’t have to look at every number, every time, but there are certain key numbers that, if they look OK, tell you that you don’t need to look at the rest. Those numbers are called Key Performance Indicators or KPI for short.

Every business has a few numbers that, at a high level, tell you a lot about what the rest of the numbers will be. By looking at your KPI frequently (even daily) it can keep you more “in touch” with your overall numbers. That way, when you look at your Income Statement and Balance Sheet once a month, the questions you are asking will be more informed. You will start to notice when numbers are “off”, and you will do a better job steering your business!

Yes, you need to pay attention to your gut instincts — they can be very useful in steering your business. But as your business grows you need a good dose of hard numbers to clarify your thinking. The way to measure business performance is by numbers, and forecast the future from there.

Small Business KPI Reporting Tool

Photo credit: morebyless, dsearls, Eric Kilby,

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