How NOT to make $10 million
We were on an upswing. Sales were good coming off the holiday season and optimism was high. The CEO set an ambitious goal for the coming year, “We’re going to hit $10 million in sales” he declared! Soon, the wheels were in motion. We hired a new Sales Manager, new Sales Representatives, more Product Specialists, more Customer Service Agents and additional Warehouse Associates. We also expanded into an additional warehouse in the same parking lot, which we filled with a container of products we pre-purchased ahead of time to ensure the $10 million goal. We were ready!
But no one bought. Over the previous two years we saw sales increase from $6 million to $8 million, so why not jump to $10 million? I mean, why not!? Soon, weeks turned into months and though we had added enough team members to handle $10 million in business, we could only afford enough staff to do $8 million in business. First came the layoffs of the Warehouse Associates, then the Customer Service Agents, then the Product Specialists, then the Sales Representatives and finally at the end of the year the Sales Manager had to go. The reason all of those employees lost their jobs? “Sorry guys, we just didn’t meet our goal this year, it wasn’t for a lack of trying!”
Unfortunately that was untrue. We didn’t try. Because if we tried, we would have first looked at our sales over the previous years, identified reasons why sales increased, discovered which months were the best and why, viewed what products were sold over others, figured out what was the average margin, created goals and KPIs, created budgets, not hired more people, not got additional warehouse space, not purchased additional products, created a strategic marketing plan, held weekly meetings to track progress, optimized our sales channels, focused on the customer and only sold products that made us money. How do I know that would have worked? Because we did it the following year and got to $10 million.
Time and again I see companies make the mistake of creating and focusing on the outcome, without establishing KPIs and a plan to reach that outcome. That’s not how that works. Let’s look at what does work.
What Are Outcomes?
Outcomes are the goals that your business is trying to achieve. As a Fractional COO, I work with businesses to define their end goals, whether that’s increasing revenue, expanding market share, or improving customer retention. Outcomes are the destination. The point where you want to be at the end of a specific period.
Examples of Outcomes:
Achieving a 30% increase in annual revenue
Expanding customer retention rates to 80%
Doubling market share in your target region
Becoming the leading brand in your industry
Outcomes are typically big-picture goals that align with your company’s vision and long-term success. They provide clarity on what success looks like, giving your team a reason to push forward and a target to hit.
What Are KPIs?
Key Performance Indicators (KPIs) are measurable metrics that help track progress toward achieving your outcomes. They are the “dials and gauges” that show your business is moving in the right direction. If outcomes are the destination, KPIs are the road signs that tell you how far you’ve come and whether you’re on the right path.
Examples of KPIs:
Monthly sales growth
Customer satisfaction score (CSAT)
Conversion rate from leads to customers
Employee retention rate
It’s important to select the right KPIs to monitor because they provide you with critical insights into the health of your business. KPIs are the metrics you can follow that indicate your strategy is on track.
The Danger of Focusing Only on Outcomes
I’ve seen firsthand how businesses that focus solely on outcomes can fall into the trap of obsession. They fixate on the end goal so much that they believe they can manifest it into existence without any concrete action plan or measurable steps to back it up. Here’s why that’s a problem:
Obsession with the End Goal: When you focus solely on the outcome, it’s easy to become consumed with the dream of success and lose sight of the process. Without KPIs to guide you, this can lead to misguided strategies, bad decisions, and ultimately, poor results.
Lack of Adaptability: Without tracking KPIs, you lack the real-time feedback you need to understand whether your strategies are working. Without this insight, you’re essentially flying blind, unable to adjust when things aren’t going as planned.
Unrealistic Expectations: Focusing only on outcomes can create unrealistic expectations. It’s crucial to remember that success is a process, not an outcome that will happen by sheer force of will. Outcomes are the result of consistent, measurable actions, not just wishful thinking.
The Importance of KPIs in Achieving Outcomes
I always encourage businesses to measure their progress with KPIs. Here’s why KPIs are essential to achieving your outcomes:
Data-Driven Decision Making: KPIs provide actionable insights that help you make informed decisions. By tracking KPIs, you can analyze what’s working and what’s not, adjusting your strategy as needed to keep moving toward your outcomes.
Operational Efficiency: KPIs allow you to optimize processes and improve efficiency. By tracking specific metrics, you can identify bottlenecks and inefficiencies in your operations and take corrective actions before small problems become big ones.
Continuous Improvement: KPIs provide a clear framework for continuous improvement. As you monitor your progress, you can make small but impactful changes that add up over time and drive your business closer to its desired outcomes.
Accountability: KPIs ensure that everyone in the organization is aligned and accountable for achieving the business’s outcomes. When the right KPIs are in place, it’s easier to keep your team focused on the tasks that matter most.
Why You Need Both Outcomes and KPIs
I can’t stress enough how important it is to have a balance between outcomes and KPIs. Here’s how both are crucial for your business success:
Clear Vision: Your outcomes provide your business with a clear vision. They define where you want to go and what success looks like, giving your team a unified goal to work toward.
Actionable Steps: KPIs provide information to help break that vision into actionable steps. They turn your broad outcomes into specific, measurable tasks that can be tracked and optimized via KPIs.
Strategic Planning: The combination of both allows you to develop a strategic plan that includes not only where you want to go but also how you’ll get there. With outcomes and KPIs working together, you create a clear, data-driven roadmap for success.
My goal is to help you achieve your business outcomes by focusing on the right KPIs and ensuring your operational plan is sound. You can’t rely on outcomes alone to get you to the finish line, KPIs are essential for guiding your day-to-day actions and keeping your strategy on track.
When you combine a clear vision for the future with the right metrics to track your progress, you’re not just hoping for success, you’re actively creating it. And that’s how businesses achieve sustained growth and lasting success.