If you take an informal poll of most pool and spa business owners, you’ll likely find that profits are the No.1 factor that they use to assess the health of their businesses.
But profits are just one indicator of a healthy organization. Dozens of other business conditions, known as Key Performance Indicators, arguably combine to paint a truly clear picture of how well you’re operating your store.
By harnessing the power of the KPI, retailers can potentially take their stores to new levels of prosperity. Here, pool and spa professionals explain how.
What is a KPI?
KPIs help measure the progress of a business in a variety of different areas (retail sales, pool service, customer service, etc...) by providing retailers with a method of spotting positive and negative trends.
Profits constitute one KPI, but others help pinpoint what is needed to get the profits company owners want, says Brian Quint, president of Aqua Quip in Seattle.
“You have to step back from that and think about what causes the profits,” he says. “Break those down into measurable pieces and then you track them.”
Over time, you can access how your business is performing in a number of areas. For example, you could surmise that profits are caused by sales, and sales are caused by a variety of factors, including:
• Number of transactions per hour, day or week
• Dollars per transaction per hour, day or week
• Number of leads per week
• Number of new customers per day, week or month
Many other KPIs can help measure a business, ranging from revenue per employee to average sale with water tests. But you should start with the basics, says Dennis Marunde, president of Crystal Lake, Ill.-based Arvidson Pools & Spas. As a professional who has been using KPIs for about 25 years, he recommends the following, which are universally applicable to retail businesses:
• Average sales per square foot
• Each department’s average sales per square foot (chemicals, pool toys, hot tubs, etc.)
• Average monthly sales
• A comparison of actual versus target monthly revenue.
Marunde also discovered that his Daily Cash Target KPI has been surprisingly helpful. Every month he establishes an average amount that the company should be taking in per day. The number is based on company data that he’s collected over the years, which ensures that the goals are reasonable and attainable. This target number is posted for all employees to see, and he updates the actual total daily.
“I want everyone in the company to be focused on this number,” says Marunde. “It pays the bills!”
He provides monthly bonuses to employees based on the achievement of this target number, which, of course, motivates them to do their best to help get those numbers up.
How to measure a KPI
Once you’ve figured out the KPIs that are right for you, the next step is to keep track of them and turn the data into something that can actually help your business grow.
It all comes down to mastering a few basic KPI formulas. Let’s start with one of the simpler calculations: Sales Per Employee. To find that number, you would use this formula:
No. of total sales/No. of total employees.
If your sales are $100 and you have two employees, then you have a KPI of 50. (For more KPI formulas, read the accompanying sidebar, “Formulas for Success.”)
“It’s beneficial for that number to be higher,” says Quint, so you can track this KPI month to month and figure out how to make the number grow from there.
Quint notes that your options for raising this number are to either sell more, have fewer employees, or a combination of both. However, he cautions against the temptation to employ quick fixes that seem like they may improve your KPI numbers. Letting go of employees can make your Sales Per Employee KPI increase, “but that’s not sustainable in some cases,” says Quint.
How many/how much?
If you’re not using KPIs at all, your first inclination may be to cobble together as many as you can think of and immediately get down to analyzing the data. But Quint suggests taking it slowly at first.
He recommends selecting three KPIs to monitor this year and then focusing on improving them. Three is a manageable number, and improving those indicators will boost confidence and motivate you to add three more next year, he says.
He cautions, however, that you should cap your KPIs at about 10 to 12. Any more can become overwhelming.
Since the goal is to spot emerging trends, Quint recommends examining most of your KPIs monthly. It will take far too long to see any trends emerge from an annual analysis, and examining data on a daily basis will just drive you crazy, he says.
Sue Rogers, owner of Oregon Hot Tub, based in Portland, Ore., has been using KPIs for years and examines most of them monthly. However, she recommends that smaller stores in particular start by monitoring basic KPIs, such as average dollars per sale, on a weekly basis. Small retail outlets can’t afford to wait two to three months to find out that they didn’t sell enough products eight weeks ago, she says. “The smaller you are, the more important the cash flow,” she says.
Keeping track of KPIs
Interpreting these numbers is not rocket science. If your sales and customer service satisfaction numbers are going up, that’s good. If they’re going down, that’s bad.
Rogers explains that, in addition to tracking up and down trends, KPIs can be used to measure how close a business is to reaching predetermined goals. If your goal, for example, is to achieve 95 percent customer satisfaction within a three-month period and you finally reach that goal, you may choose to continue monitoring that KPI or step back and place your focus on other areas. Perhaps you can revisit the customer satisfaction issue farther down the line just to make sure that you’re maintaining the status quo.
Organization is the key to completing just about any task, and as the months go by you’ll find yourself with a lot of KPI data that can easily get jumbled up with invoices, bills and other business documents. But your friendly neighborhood POS system can help you keep track of all of it and stay organized.
Rogers has been using her POS system to keep track of KPIs for years. In fact, she credits KPIs with keeping her stores afloat during the Great Recession. “My employees are obviously the biggest reason we survived, but KPIs [are] right behind them,” she says.
During that time period, Rogers’s businesses couldn’t afford even the slightest hint of inefficiency. New hot tubs weren’t exactly jumping off of retail shelves, so she focused a lot of attention on the service side of the business. She used her company’s POS system to track several variables in her service department, including number of jobs per day, and go-back percentages — the number of times service techs needed to return to a work site in order to complete a job.
She recommends creating a line item in your POS system labeled “Return Visit.” From there you can track which techs are getting called back and how frequently. Patterns will then begin to emerge, and from there you can ascertain the true underlying problem: Did management fail to provide technicians with the correct parts to complete the job? Were the techs not trained properly? Since pool and spa businesses don’t typically charge customers for return visits, making sure service professionals get it right the first time just flat-out saves money.
But POS systems aren’t the only way to track KPIs. Because the data needed to determine them can originate from tax returns, payroll data, and other documents, Jennifer Martin, founder of Zest Business Consulting in San Francisco, recommends creating an Excel spreadsheet to keep all KPIs in one place. She also suggests using digital dashboards, such as iDashboards, Domo, and Klipfolio.
But what do you do about tracking KPIs that are not so numbers-oriented, such as customer satisfaction? Marunde developed a system that centers around two different surveys that are sent out weekly to his service and retail customers. They go out via a service called Survey Monkey, and each has approximately six questions designed to find out how customers feel about Arvidson’s customer service (e.g. Did you find and purchase what you came in for? How quickly were we able to serve you? How likely are you to shop at Arvidson Pools & Spas in the future?).
He receives 30-100 surveys back per month, with the results delivered to him via email. He reviews the overall changes to the data at least weekly to see if employees are performing up to his standards. The goal is to have each customer rate Arvidson’s service at 90 percent or higher.
There are many resources available to help you find the right KPIs.
Quint was introduced to KPIs through a peer advisory group. He recommends doing an online search for similar groups in your area, or consulting the Small Business Administration and business organizations, such as the SCORE association.
Bankers also can provide assistance, Quint says. Referring to metrics they use on their own customers, these professionals can help you develop KPIs that are appropriate for your business.
Seeing KPIs from other companies can also provide perspective. Twice a year, Rogers meets with similar businesses in various parts of the nation to compare KPIs.
“If we were going to start monitoring a new KPI… then we might reach out to another dealer who is particularly strong in that area, then use their formulas, get their advice, [and] learn from their success track to improve our numbers more quickly,” she says.