There are a lot of important numbers you need to pay attention to if you want to be a great company. But you can’t treat them all the same. Some numbers are simply more important than others. And some are downright critical.
Even important numbers can be misleading if you look at them in a vacuum. Take sales, for instance. Are they important? Absolutely. But if you look at your sales number in isolation, you could end up in trouble. You could have great sales numbers, but if your cost of sales is out of whack (too high), you’ll be out of business.
Some businesses get hung up on head count. They look at an increase in the number of employees as a sign that the company is growing. It could be, but what’s the productivity number? What’s the impact on (long term) profits? Business isn’t just about being busy.
What about critical numbers? And what the heck makes a number critical in business. A critical number is the metric you use to chart and measure your business health. It’s that one number you need to watch that drives the economic engine of your company. And it can change from year to year, depending on where your business is in its life cycle.
Your critical number could be your debt-to equity ratio. It could be your sales-to-cost-of sales ratio. It might be cash flow. Or it could be your percentage of market share. Your critical number comes out of your strategic planning. It’s what you use to determine whether or not you’re on target to reach the specific goals you set for the company. And it’s dependent upon what your company really needs at the time.
For instance, a company with great sales numbers, but a lousy cost of sales number doesn’t need to focus on improving sales. It shouldn’t ignore sales, but that’s not the critical problem. They need to figure out how to reduce the cost of sales.
Here’s another example. A number of years ago a well-known high tech firm had great numbers in their support division. They were hiring like crazy and their people were busy. What they didn’t see (initially) was that the reason support was going gangbusters was that quality control at the front end was bad. They were busy, but they were losing money. Their critical number wasn’t increased support activity. It was poor quality control.
What’s your critical number? You have a lot of important numbers you need to watch, but don’t lose sight of the really critical numbers that can make your company great—or break it.