The Easy 4-Step Process to Build a Business Scorecard

If I were to "drop in" on your business today, could you tell me how things are going this week?

Most business owners don't have a formal tool or process for monitoring early warning signs (both good warnings and bad warnings). These "tools" go by many names: KPIs, scorecard, dashboard, balanced scorecard, report card.

Queue the Peter Drucker quotes — What gets measured gets managed.

What is it

A scorecard is a tool to track and monitor your business's progress toward goals, objectives, and historic performance. It's a visual display of your company’s key performance indicators (KPIs).

KPIs are the metrics that tell us how things are going; they're usually some combination of financial, non-financial, leading, and lagging indicators.

Some examples:

• Leading — Sales calls, backlog, traffic, call volume, cycle time
• Lagging — Turnover, average order value , on-time delivery
• Financial — Sales, profit, A/R, billings, collections, cash flow
• Non-financial — Labor hours, utilization, inventory units, leads

A scorecard is simply a curated set of KPIs that you regularly track.

We can set goals or benchmarks for each of these metrics and track them daily, weekly, or monthly to see whether we're on or off pace. Simple example: if we want $1m annual sales then we need $19k sales per week (i.e. $1m divided by 52 weeks) to get there.

Why this should matter to you

You've likely heard the analogy of driving without a dashboard. It's like that plus driving without a rearview mirror. Imagine not having a fuel gauge, how would you know if you're about to run out of gas?

Using a scorecard helps us:

1. Achieve our goals and targets (i.e. if we want $250k annual profitability);
2. Show us what we're doing wrong and potential potholes; and
3. Show us what we're doing right so we can do more of it.

How to use it

Don't stress about choosing from the tons of KPIs/metrics out there, just get started and see what works for you. Here's a quick 7-step guide to building a fast and efficient scorecard:

1. Brainstorm as many potential metrics as possible (seek input)
2. Choose 7-12 metrics for a high-level view of your business
3. Try out a variety of metrics over 4-6 weeks, then adjust
4. Review the scorecard with your team every week
5. Toss out metrics that aren't "warning" you of business performance (refine)
6. Stick with weekly metric tracking (longer timeframes = less likely to use it)
7. Bonus: sometimes the best metrics are hardest to track (i.e. manual)

The key to great scorecarding is to be consistent. It doesn’t matter the time interval you’re measuring (although weekly is ideal), but it does matter that you keep at it each and every week. Gaps in your data make it harder to gain insights.

Here's a sample view of a template:

Key takeaway — Brainstorm metrics relevant to your business. Open a new excel file or Google Sheet and start tracking 7-12 metrics on a weekly basis. Review it religiously every week. With each data point, you’ll have a better sense for whether your business is healthy or in harm’s way.

If you're feeling stuck, send us a note at [email protected], we're here to help!