Spring training for my beloved Detroit Tigers starts in just about a month – 1:05 p.m. on February 25, to be exact. Baseball fans know it’s a stat-crazy sport. But not all things that can be measured are equally important.
In recent years, baseball owners have started using a statistic that’s extremely valuable – Wins Above Replacement, or WAR. Basically, WAR measures how many wins a player contributed to a team by comparing him to a replacement-level player – someone who is coming off the bench or called up from the minor leagues.
What does this have to do with business? Plenty, actually. WAR is a statistic that can measure a player’s effectiveness. Business owners can apply this same kind of strategic thinking to determine how valuable their employees are.
But first you need an employee scorecard. If you’re a business owner, you probably know who your star employees are. But what makes those people stars? And more importantly, how much more did they contribute to the success of your organization than another employee in the same position? While you may have a hunch who the top performers are in your organization, an employee scorecard can help you identify them more easily and set goals to help under-performers rise to new levels.
You can do that by using employee scorecards. Employee scorecards are single-page reports that break down results in a manner that can be easily understood by management and the employee.
You can use employee scorecards to identify your strongest employee, to give feedback, and to help identify areas where improvement is necessary. Typically, each employee helps develop his or her scorecard by giving input on what will be measured and the expected goals.
I recommend reviewing employee scorecards monthly to identify trends as well as variances from expectations. The information should be discussed with the employee and researched for ways to help the employee improve, as well as the company as a whole.
Information that should be included on scorecards includes:
For salespeople: Total sales, gross margin on sales, closing percentage (leads/sales), revenue and profit per lead, and feedback scores from customers
Why are these important? Sales people are supposed to sell, but more importantly they need to sell profitably. All the sales in the world are useless if you lose money on them. Also, many companies spend a lot of money on advertising to generate leads, and management needs to know how effective their salespeople are at turning those leads into sales and profit.
For bookkeepers, controllers and accountants: average days receivable, ready cash (cash in bank plus accounts receivable less accounts payable and other current liabilities including credit cards, budget to actual on general and administrative costs, discounts taken, and interest expense
A controller's main job in a small business is to make sure cash is utilized effectively. That’s why a scorecard for a controller should mostly focus on measuring the use of cash. Are your receivables being collected in an effective manner? Do you have adequate cash on hand to meet current needs? Are you borrowing too much and losing profit to interest expense? These should all be measured on a controller scorecard.
For managers: Aggregate scores for their teams,(such as total sales of all salespeople for a sales manager), employee turnover, aggregate customer feedback scores, budget-to-actual on expenses they control, (which could include overtime labor for a production manager, and repeat business and customer retention)
Managers are directly responsible for their team's performance, so it makes sense that managers should be judged based on aggregate scores of their teams. Managers also need to be accountable for the expenses they directly influence because they are uniquely positioned to eliminate cost overruns before they happen. Finally, all managers, and not just sales managers, need to be judged on employee retention and repeat business, as managers are responsible for leading employees who work directly with customers.
If you think there are some jobs that can’t be measured in numbers, you are absolutely wrong. Even receptionists and administrative support staff can be measured. You just need to get creative.
Robert J. Rickert CPA, PC focuses on giving its clients timely, accurate and relevant financial information to help them make informed decisions about their businesses. The firm provides customized solutions to meet the specific needs of its clients. Services offered by the firm include CFO and controller services, crisis management, interim financial management, acquisitions and business buying, divestitures and business selling, litigation support, business tax services, and tax dispute assistance for individuals. For more information, visit rickertcpa.com, call 910-319-9127 or email [email protected].
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