Our post today is about what seems like a boring topic – measurement. But stay with me.
If you’re a manager of an amenity or an alternative asset, there’s a lot you can measure: occupancy, retention, membership, usage, income, and the list goes on and on.
The key to understanding your business is, you guessed it, measurement.
Normally, measuring key business metrics is not the first task that managers will run to. It can be intimidating, difficult, and time consuming.
But today I want to comment briefly on how important it is, not only for understanding the current state of a business but for equipping you to make adjustments when the need arises.
Take a fitness center, as an example. Maybe more than any other core alternative asset, a fitness center has a lot of data and metrics to track: membership levels, membership mix, personal training revenue, sales by source, locker rentals, cancellation & retention rates, lifetime member value, cost of member acquisition, and more.
Fitness centers typically have high churn rates so one powerful example of the importance of measuring data is for marketing. Assume this fitness center has a monthly marketing budget of $5,000, to spend on various digital and print marketing channels.
How do you deploy that $5,000 in the most effective way possible? To figure that out, you have to get granular with the data: how many sales can be attributed to a particular mailer? How many leads came through social media posts? What is the cost of member acquisition for a print ad campaign? How does the cost of member acquisition compare to the cost of retention?
Without answers to these questions, this fitness center is throwing money out the window since they can’t possibly determine what marketing strategy will be most cost effective. More importantly perhaps, if performance starts to suffer, the key to creating a proactive strategy is to know what is NOT working. And the data necessary to track all these different metrics is very accessible in the normal course of business. If it is not being tracked, it easily can be.
The same examples can apply to any business: how can a parking operator decide what mailer campaign to launch if it doesn’t track the success of past mailers; how can a self-storage business decide whether to raise rates if it doesn’t track its current occupancy, length of occupancy, and competitive rates in the neighborhood; how can a laundry operator decide whether to add machines or raise rates if it doesn’t track usage and cycle counts? Across the universe of alternative assets and businesses in general, measurement is the key to making informed decisions.
Measuring data at a higher level means budgets. Creating a monthly itemized budget for your revenue and expense line items is essential to creating a business plan, tracking progress and problems, and understanding the health of the business. Not only can budgets establish a business plan, but with a budget you can track variances and determine in a very detailed way how and why you fell short or exceeded a budget target.
Back to the fitness center for a minute, assume as a very simple example you budgeted 30 sales in one month at an average net rate of $70. Actual sales came in at 20 at an average net rate of $60. Something is off here. It could be that your sales staff gave out more promotions than expected, or your freezes or delinquencies were higher than usual and dragged down the net rate, or a marketing promotion wasn’t as successful as expected. There’s a lot of information you can unpack from just a few numbers.
This is just the tip of the iceberg of what it means to measure business data, but even if you’re not a data junky, there are simple data points you can derive from your normal business operations that over time can tell you a tremendous amount. Remember, you can’t manage what you don’t measure.