We’ve finally reached the final area in our deep dive into the KPIs of the 8 key areas of business, here at Heritage. During this series, I’ve had the opportunity to speak with several people from the Heritage team, and give you an in-depth look at our business. For the final key area, I knew I just had to speak with our COO, Amy Ahrens. I mean, who knows more about the metrics that go into operations KPIs than the Chief Operations Officer? Join me as I share some of the insights that Amy shared with me.
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When it comes to the operations side of business, there is a wealth of information available. There have been more books written about business operations than I can even keep track of—and I’ve been known to read a little bit. Because operations have been discussed ad nauseam, it’s the one key area of business that most business owners feel pretty confident about. But what are operations really all about?
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Put simply, you want to provide your clientele with a service process that is predictable and repeatable. When you look at your operational processes, it all boils down to moving your customers from start to finish in the most profitable and efficient way possible. Likewise, you want to achieve this without sacrificing quality. If you’re struggling in this area, it’s probably because you’re a type D personality—like me—and you don’t have a steady and careful personality—like Amy—to balance you.
For example, I am a high D personality. I don’t like to take the time to review all of the steps of the process. Instead, I just want to get things done. This had disastrous consequences when I attempted to bake a cake, last week. I pulled out the box of cake mix and decided I needed to double the recipe. So, I mixed the box of ingredients with a bag of flour, popped it in the oven, and waited for my moist, delicious, chocolate cake to bake. But what I pulled from the oven was not a cake. Because I didn’t follow the directions, I baked a brick. So, tracking the processes that guarantee operational excellence is very important.
At Heritage, we measure our operational success through a series of 20-30 indicators. Like most of the 8 key areas, we track past, present, and future indicators. This gives us a holistic view of where we’ve been, how we’re doing, and where we are headed. We often look at our client status board to ensure that our clients are kept on schedule. We want to make sure they’re getting what they’re looking for when they’re looking for it. Similarly, we track our resource capacity. These KPIs are examples of present indicators. They help to stay on schedule, properly allocate resources, determine any hiring needs, and set accurate project completion timelines.
One example of a past or lagging indicator, at Heritage, is the number of client accounts we’ve opened. In order to be as efficient as possible, we have to make sure that we are doing things right the first time. So, we look at the number of errors that were made (things that must be redone to complete the process) to determine how efficient we have been with our client processes.
Finally, no business should take its eyes off of the future. If you don’t know where you’re going, you’ll never know how to get there. With that in mind, we like to track the lifetime value of our clients. This gives us an idea of what types of revenues we can expect year after year. Additionally, we want to explore the depth of client services that are engaged. For example, we work with many business owners. They might engage us to advise their business for value growth, but we also want to provide comprehensive wealth management in their personal lives. We believe that the two sides—personal and business—should work toward the same goal.
As I’ve gone through each of the 8 key areas, I’ve tried to identify one or two key performance indicators that really stood out in our business. These are the two indicators that have the greatest impact on the overall success of that area. When it comes to operations, Amy is our guru. She has her finger on the pulse of the entire organization, and there’s nobody better to ask about these KPIs. When I asked her to identify the two most important operations KPIs at Heritage, she said, “On-time completion percentage and customer profitability score.”
I’ve often said that we can correct what we can measure. Likewise, if we can track something, it can be measured. So, we track our on-time completion percentage. Essentially, this is a metric that details how well we are keeping on schedule with our projects. We track this because operations are all about predictability and repeatability. If we are accurate in our project timelines, we become predictable.
Now, this is an indicator that our entire team tracks. Each person assigned to a particular project plays a part in tracking this metric. We use a Microsoft One Drive Spreadsheet in our Team KPI folder under Operations, and we use our Workflow Management in our Customer Record System to track them. How often is the on-time completion percentage tracked? Well, typically, this is done on a per-project basis. However, we check the project’s progress weekly and then look at the percentage during our quarterly strategic planning workshop.
Just as we encourage all of our business owner clients to do within their own processes, we have created a Standard Operating Procedure (SOP). Our CRM allows us to create a workflow that we use to create the SOP. Every step in the process is mapped out because we want to have great follow-through to ensure that our process is predictable. So, our CRM prompts us to complete tasks and manually enter the completion date into our spreadsheets.
This is an interesting KPI, folks. What we’re tracking is the amount of time and revenue per client service within a household. Ideally, we want to increase our most profitable client households, as they provide the most value for the time invested. As the COO/Director of Operations, this is an indicator that is directly tracked by Amy.
Essentially, we pull reports from billing and tracking systems and use formulas based on accounts per household, annual contributions, annual distributions, services used, and even the age of the household, to ensure we have clients across all age categories. This is important because different age demographics have different financial goals. A client in their 20s is likely trying to pay off student loans while establishing their career. Meanwhile, clients in their 50s are often trying to “catch up” in preparation for their retirement. Additionally, this information helps us identify and add clarity to our target clients.
Now that we’ve given you a peek into our own operations KPIs, I want to narrow down the top-five indicators that I believe all business owners should be tracking. These are the indicators that stand out regardless of your particular industry. You should be able to get a valuable look at how your business is performing in its operations by putting these KPIs to work.
You’re in a risky place if 1-5 clients make up more than 25% of your total revenues. In fact, for valuation purposes, your business can be discounted by 30% for customer concentration. I had a client, in the early days of Heritage, who had a customer that made up about 40% of their total revenue. We identified that and helped the client to diversify and remove some of the risk that they faced. As it turns out, the customer left my client about 18 months later. Had we not caught that in their customer concentration, that could have been disastrous for my client.
This helps you figure out how many engagements you need per month to meet your financial goals. Then you can extrapolate how many leads result in client engagement through marketing and sales indicators. Basically, this tells you how long it takes for you to begin making money once you’ve secured a client.
If I know that I need to secure ten clients in order to reach my financial goal, I also need to know how much it will cost to acquire those ten clients. If you don’t know how much it costs to onboard and serve a client, you don’t know if you’re actually making a profit. You want to look at facts instead of theory, perception, or opinion. Knowing this figure helps you determine when your pricing needs to be adjusted.
We want to have clients for life. It’s our goal to make every client feel as though they have found “the solution.” The reason for this is two-fold. For one, we legitimately care about our clients and want to help them achieve their goals. In fact, we call them our friends. But from a more pragmatic position, it is usually more cost-effective to retain a client than to constantly replace them. When you provide excellent client service, you gain client loyalty and referrals. Knowing what is important to clients helps you educate your team members and keeps you from spinning your wheels. Additionally, the longer you retain a client, the lower your cost of acquisition.
Every good operations department needs to have SOPs to prevent errors and save time in training team members. Having these SOPs builds the value and transferability of the business. Using those SOPs, the indicator of On-Time Completion helps you keep track of every time you kept promises to your clients. Knowing the number of jobs in progress and where they are in the process helps you know how to judge your team’s capacity (when you need to hire or reassign), prepare for growth, and how well you’re meeting or exceeding client expectations. Again, you want to provide an experience that is predictable and repeatable.
Folks, if you’ve followed along with this series and still think that you don’t know how or where to begin, don’t worry. Reach out to us. We do this every single day. Solidifying, strengthening, and condensing the KPIs for each of the 8 key areas of your business is a challenging and time-consuming process. However, once you’ve finished, you’ll have an easy list of references that tell you exactly how healthy your business is.
Friends, life is good. It’s hard, but life is good. Identifying your operations KPIs can be frustrating, but it doesn’t need to be. With a little patience and a thorough review of your processes, you can make improving operational performance, at least, financially simple.
Don’t be overwhelmed by setting up systems to track the KPIs, KRIs, and PIs in your business. Schedule a meeting with one of our business experts. The team at Financially Simple is always ready to help!