Tracking Results Is Not the Same as Measuring Them
authors Shawn McCadden | December 13, 2019
Back when I was a new remodeling business owner, as I sought to advance my business and my business acumen, I came to the realization that perhaps I was being misled. Articles, consultants, speakers and the books I read all told me I needed to track what my business was doing. I don’t deny or question the need for tracking. I, however, feel I was misled because those sources of information left out what I came to learn on my own.
Tracking by itself really has little benefit unless you know what you track and why. To me, that meant I should concentrate on measuring. Tracking shouldn’t be the goal, just a tool. Measuring whether I was achieving my goals should be the goal.
An Important and Strategic Activity
I have observed that too many remodelers track random metrics inside their business. They track what they think they should be tracking, instead of tracking what they actually should be tracking. For example, remodelers typically track their volume, which only measures how much money they have collected. In addition to tracking their volume, they should track their gross-profit dollars earned against how many budgeted gross-profit dollars their business needs.
This, of course, first requires that you actually know how to figure out how many gross-profit dollars your business needs collectively to cover both your budgeted overhead and your planned net profit. To clarify, if you hit your volume goal but poor estimating or poor production efficiency eats away planned gross profit, you might hit your volume goal but will likely keep repeating avoidable slippage mistakes.
Gathering important business management and financial data needs to be a proactive activity. Too many business owners track information and then decide what they learn from it. It’s not that doing so doesn’t have potential value, but it’s not being proactive. To be proactive you need to know what to measure and why.
Knowing why ensures that you measure all the information you need, and in the format you need it. For example, do you want to just track your company’s sales and close rate, or should you also be separating that information by each salesperson, lead source, job type, etc.? The answer depends on your desired goals.
Again, the data you collect without having established goals can still be valuable. However, think of it this way: Is it better to accurately collect five data points you want to measure than to track 25 data points that might not include the five you need? For example, if your produced gross-profit margin drops, and you don’t track margin by lead carpenter—only overall—you won’t know if the team is challenged, your estimator is messing up, or if one lead carpenter is causing the underperformance.
Compare Apples to Apples
To increase the accuracy of the decisions you make, you need to be 100 percent sure your tracking data is consistent and will give you an apples-to-apples comparison. For example, you need to define what a lead is before you start tracking leads. That way, everyone in your company is using the same definition. Is a lead anyone who contacts your business? Or is a lead someone who calls but also wants what your business actually sells?
At some remodeling firms, both are considered leads. At my business, one is a lead and the other would be called a “qualified lead.” Using my examples, the close ratio for leads-to-sales is different than the close ratio for qualified-leads-to-sales. Also, if we separate leads from qualified leads, salespeople will have more time to sell to the right leads. They will only be assigned qualified leads. They won’t be wasting time with people who aren’t buyers of what we have purposely decided to sell or don’t like how we sell it.
Another common example of not measuring apples-to-apples involves defining labor costs when job costing. My experience shows me that most remodelers estimate with a burdened labor rate and then guess at what it should be. However, if you use QuickBooks for your job costing, and you did not have a professional set up your job costing, I bet you are only job costing with actual wages and payroll taxes—not fully burdened labor.
This simple but common mistake causes many remodelers to assume they hit or beat their estimated labor costs. When, in actuality, they are comparing apples to kumquats! Pay attention to this. Most of you are making this mistake (including the guessing).
Don’t Measure Everything
It is not practical for a remodeling business to track everything. Just think of the time it can take to analyze all of that data. Using the 80-20 rule—where prioritizing and concentrating on the right 20 percent of information (measurements) your business could in theory get 80 percent of the data you need to measure—watch and know what’s happening inside your business.
Some refer to this 20 percent as “key metrics,” the important stuff to watch. The idea is if a key metric is off, you can then decide if you need additional measurements and tracking to dig into what that key metric might indicate.
I hope you see that measuring and tracking are complementary activities, not standalone efforts just so you can check them off your list. Know what you want to measure before you track so you are tracking the right things and in the right way. QR
McCadden is a speaker, business trainer, columnist and award-winning remodeler with more than 35 years of experience. He can be reached at shawnmccadden.com.