Quantifying the success of a service-based company can be difficult for small business owners.
How do life coaches use numbers to track their business when clients’ goals are very subjective? How would an interior designer determine the most cost- and time-efficient activities, when every client’s project is different?
“A lot of business owners are very knowledgeable about their business or industry,” said John Harmon, managing director of Adulant Consulting Services. “But they operate off of instincts and without structure.”
Speaking at a SCORE workshop in Darien late last month, Harmon stressed the importance of quantifying a business’s structure through creating value chains and identifying key performance indicators. Besides managing his own consulting agency after many years in corporate America, Harmon has been a mentor for small businesses through SCORE for two and a half years. SCORE is a nonprofit education and counseling organization dedicated to expanding small businesses.
“I rarely come across a service business that has a rich set of metrics that measure their performance,” Harmon said. “That may be fine because they’re happy and they don’t want to change. But most businesses have this problem and also want to grow. If they run their business in a structured and quantifiable way, they’ll have a lot more success, fewer hassles and a lot more growth opportunities.”
Supply chains are easier to conceptualize when there are tangible materials being used to produce a good. But service organizations can also use the concept by looking at their service and creating a value chain and then identifying their key performance indicators, Harmon said.
For instance, a call to an IT help desk might begin with an operator with little tech knowledge. Then it might get passed to a message machine and then it might need to be directed to someone with higher expertise. Looking at the call process, a company could measure the amount of time a user spends waiting for a solution, how many times the operator misdirects a call and also how often calls end up in a voicemail box.
If business owners are running a business by the seat of their pants, they won’t be able to understand why their customers are ever unhappy or what to improve. If having calls be answered promptly is the most important aspect to customers, maybe employees need to be given cell phones, Harmon suggested. If employees are continuously dealing with the same issue, maybe an automated answering system should be put in place.
The key difference between a manufacturer and a service is that a service doesn’t require raw materials, said Mark Fagan, Citrin Cooperman managing partner. Instead they are selling their time and their expertise.
Citrin Cooperman is a business solutions and accounting firm with an office in Norwalk.
If an interior design firm tracks how much time is spent with its clients, it may notice that it has 10 clients that demand twice as much attention as its others clients for the same price. If that’s the case, the firm may want to consider doubling the price. If half leave, they’ve already been paid for by the other half and now the firm can go out and look for more clients, Fagan said.
Metrics are vital to a small company looking to grow, but that’s only the first step, Fagan said. It might seem obvious that an employee who is cranking out five sets of designs at a firm is more valuable than the employee completing three in the same time period, but the metrics must be put into context. The employee completing less work may be out securing more work and clients for the future.
“As you grow it’s even more important,” Fagan said. “We want to get these metrics in and get the owners used to running their business like this, when the business is manageable … a larger company takes more time to change.”