Measures of Success

Is your business successful? How do you measure success? In this economy - in this market - how do you feel about your business results? Are you "satisfied?"

We hear:

"Revenues are down.
"Rate continues to be low."

"I'm losing accounts because they are going out of business."

"Revenue per account is down."

So does that mean your business is "in trouble?" Last year you had a successful insurance agency. How did you measure success? By that measure, are you still successful? If you answer, "No," then why? What has changed? Maybe nothing has changed. And maybe that's the problem.

There is no question that some businesses will fail - are failing - in the current environment. Many of those business owners would have said to me less than a year ago, "If it ain't broke, don't fix it." Well, there's "broke." And then there's blase. Business as usual is a business killer if the only measure of success is this year's profit.

That said, what do we do about it? Start by looking at how you measure success. Operating profit, how well operating revenue (without contingent income) covers operating expense is a critical indicator - much more reliable than pre-tax profit. Also take a look at the percentage of fixed vs. variable expense. During periods when income is down, do expenses stay high? If so, it becomes even more important to maintain tight expense control even when times are good.

Two other solid indicators of performance are 'hit ratio' and account retention.

Hit ratio measures sales effectiveness - the number of sales made to the total number of sales opportunities. And when you look at this one, be sure to compare your total opportunities to prior years. If you're not going after as many new accounts, you may see a false positive here, i.e., hits will be measured against a smaller base.

Account retention tells you how many customers you retain. It's a little more difficult to measure than revenue persistency, which is what we usually refer to as "retention," but is a better measure of service effectiveness. If revenue per account is down, it's more important than ever to keep the customers you have.

Everyone is feeling the effects of economic downturn. And the lingering soft market. Businesses that are not "in trouble" are the ones that measure their success consistently and critically - regardless of the economy or the market cycle.