A simple method to motivate, educate, and inspire trust from your team.
Want to know the secret to massively boosting your agency’s profits, while also building a more loyal and results-focused team?
It’s picking a Critical Number.
This is an Open Book Management strategy that will help you motivate, educate, and build trust with your employees, by giving them a “north star” metric to focus their efforts on.
The way I describe the Critical Number to my clients is:
It’s your “one thing” that has the greatest impact on your business, and that clearly defines what winning looks like!
This can be anything from:
- Revenue
- Profit before tax
- Conversion rate
- Return on assets
- Billable hours
And the list goes on.
Whatever it is, put it front and center on your company’s scoreboard.
(Your teams can also have their own individual Critical Numbers for their department’s scoreboards. But for today, I’m talking about choosing a single number for the entire business.)
Most people are tempted to pick “top-line revenue” straight away.
But, that’s not a great choice, for three reasons:
- The Critical Number needs to also teach everyone in your company how the business works
- Your employees need to be able to have “line of sight” from their actions to the company’s outcomes
- Everyone in the company needs to be able to impact the Critical Number through their work
On all points, “revenue” is too broad and high-level of a concept to be useful.
That’s why I’m a big advocate for choosing a metric directly related to profit, especially in the first couple years of your business.
In particular, if you have debt (things coming off the balance sheet after profit, like principal payments), then net cash is a great option.
Why?
Because it shows your employees all of your:
- Revenue
- COGS (Cost Of Goods Sold)
- Gross margin
- Expenses
- Profit
- Principal payments
Everything you need is right there to teach them the business, and give clear insights into how their actions affect its success.
Whatever Critical Number you choose, it should be reasonable, achievable, and easy to understand.
Finally, I’ll leave you with two more points (and these are huge):
- Allow your team participate in the selection process
- Make sure the Critical Number pays into their bonus pool, and that the pool is self-funding
Because when employees truly have a shared goal, where their own success is tied to the company’s performance, they’ll go above and beyond to make sure everyone wins!
Interested in potentially implementing Open Book Management for your business?
At Open Book CFO, we help agency owners like you to:
- Quickly identify the right Critical Numbers (and other key metrics) for your business
- Transform your employees into financially literate partners, invested in your company’s long-term success
- Build customized financial dashboards that give you and your team real-time visibility into project profitability, utilization rates, and cash flow
To learn more:
Book a free 30-minute strategy call with me here.
The Winning Agency will be back on Tuesday with more team-building insights and strategies!
